Chapter 2Issue and Issuer

Section § 8201

Explanation

This section defines who is considered an 'issuer' in relation to securities. An issuer can be a person or entity that puts their name on a security certificate or creates shares in their property or enterprise, whether these are certificated or not. It can also include someone who takes on obligations on behalf of another issuer, or a guarantor who backs up the security. Additionally, an issuer could be a person responsible for maintaining transfer books for registering transfers of securities.

(a)CA Commercial Law Code § 8201(a) With respect to an obligation on or a defense to a security, an “issuer” includes a person that does any of the following:
(1)CA Commercial Law Code § 8201(a)(1) Places or authorizes the placing of its name on a security certificate, other than as authenticating trustee, registrar, transfer agent, or the like, to evidence a share, participation, or other interest in its property or in an enterprise, or to evidence its duty to perform an obligation represented by the certificate.
(2)CA Commercial Law Code § 8201(a)(2) Creates a share, participation, or other interest in its property or in an enterprise, or undertakes an obligation, that is an uncertificated security.
(3)CA Commercial Law Code § 8201(a)(3) Directly or indirectly creates a fractional interest in its rights or property, if the fractional interest is represented by a security certificate.
(4)CA Commercial Law Code § 8201(a)(4) Becomes responsible for, or in place of, another person described as an issuer in this section.
(b)CA Commercial Law Code § 8201(b) With respect to an obligation on or defense to a security, a guarantor is an issuer to the extent of its guaranty, whether or not its obligation is noted on a security certificate.
(c)CA Commercial Law Code § 8201(c) With respect to a registration of a transfer, issuer means a person on whose behalf transfer books are maintained.
security certificate uncertificated security fractional interest guarantor issuer definition obligation to perform transfer books shares participation interest property interest enterprise security obligations registering transfer
(Repealed and added by Stats. 1996, Ch. 497, Sec. 9. Effective January 1, 1997.)

Section § 8202

Explanation

This section of the code deals with the validity and terms of securities, which are financial instruments like stocks or bonds. It says that the terms of a security are not only what's printed on it but also include any additional terms referenced by other documents or laws, as long as they don't conflict with what's on the certificate itself. If a security has a defect, it is still considered valid in the hands of someone who bought it without knowing about the defect, unless it violates the Constitution. For government-issued securities, they must comply with legal requirements or receive substantial consideration. Issues like there being no real security (lack of genuineness) can be used as a full defense, but other defenses are not effective against a buyer who was unaware of them. Finally, if there's a significant change in a security, this can allow for contract cancellation.

(a)CA Commercial Law Code § 8202(a) Even against a purchaser for value and without notice, the terms of a certificated security include terms stated on the certificate and terms made part of the security by reference on the certificate to another instrument, indenture, or document or to a constitution, statute, ordinance, rule, regulation, order, or the like, to the extent the terms referred to do not conflict with terms stated on the certificate. A reference under this subdivision does not of itself charge a purchaser for value with notice of a defect going to the validity of the security, even if the certificate expressly states that a person accepting it admits notice. The terms of an uncertificated security include those stated in any instrument, indenture, or document or in a constitution, statute, ordinance, rule, regulation, order, or the like, pursuant to which the security is issued.
(b)CA Commercial Law Code § 8202(b) The following rules apply if an issuer asserts that a security is not valid:
(1)CA Commercial Law Code § 8202(b)(1) A security other than one issued by a government or governmental subdivision, agency, or instrumentality, even though issued with a defect going to its validity, is valid in the hands of a purchaser for value and without notice of the particular defect unless the defect involves a violation of a constitutional provision. In that case, the security is valid in the hands of a purchaser for value and without notice of the defect, other than one who takes by original issue.
(2)CA Commercial Law Code § 8202(b)(2) Paragraph (1) applies to an issuer that is a government or governmental subdivision, agency, or instrumentality only if there has been substantial compliance with the legal requirements governing the issue or the issuer has received a substantial consideration for the issue as a whole or for the particular security and a stated purpose of the issue is one for which the issuer has power to borrow money or issue the security.
(c)CA Commercial Law Code § 8202(c) Except as otherwise provided in Section 8205, lack of genuineness of a certificated security is a complete defense, even against a purchaser for value and without notice.
(d)CA Commercial Law Code § 8202(d) All other defenses of the issuer of a security, including nondelivery and conditional delivery of a certificated security, are ineffective against a purchaser for value who has taken the certificated security without notice of the particular defense.
(e)CA Commercial Law Code § 8202(e) This section does not affect the right of a party to cancel a contract for a security “when, as and if issued” or “when distributed” in the event of a material change in the character of the security that is the subject of the contract or in the plan or arrangement pursuant to which the security is to be issued or distributed.
(f)CA Commercial Law Code § 8202(f) If a security is held by a securities intermediary against whom an entitlement holder has a security entitlement with respect to the security, the issuer may not assert any defense that the issuer could not assert if the entitlement holder held the security directly.
certificated security terms uncertificated security validity defects purchaser for value constitutional violation government-issued security legal compliance lack of genuineness defense against purchasers contract cancellation material change securities intermediary entitlement holder security entitlement terms by reference
(Repealed and added by Stats. 1996, Ch. 497, Sec. 9. Effective January 1, 1997.)

Section § 8203

Explanation

This law essentially states that if you buy a security (like a stock or bond) more than a year after its redemption or exchange date, or two years if it's not about exchanging or paying money, you're assumed to know about any problems or disputes related to that security.

After an act or event, other than a call that has been revoked, creating a right to immediate performance of the principal obligation represented by a certificated security or setting a date on or after which the security is to be presented or surrendered for redemption or exchange, a purchaser is charged with notice of any defect in its issue or defense of the issuer, if the act or event either:
(1)CA Commercial Law Code § 8203(1) Requires the payment of money, the delivery of a certificated security, the registration of transfer of an uncertificated security, or any of them on presentation or surrender of the security certificate, the money or security is available on the date set for payment or exchange, and the purchaser takes the security more than one year after that date.
(2)CA Commercial Law Code § 8203(2) Is not covered by paragraph (1) and the purchaser takes the security more than two years after the date set for surrender or presentation or the date on which performance became due.
securities redemption certificated security defect notice issuer defense immediate performance right to performance purchaser notice redemption date security exchange presentation date uncertificated security transfer security defects act or event date security surrender performance due date
(Repealed and added by Stats. 1996, Ch. 497, Sec. 9. Effective January 1, 1997.)

Section § 8204

Explanation

This law states that if a company (issuer) wants to limit who can transfer its stock or securities, that restriction won't apply to someone who doesn't know about it unless: (1) there's a paper certificate for the security with the restriction clearly noted on it, or (2) it's an electronic (uncertificated) security and the owner has been informed of the restriction.

A restriction on transfer of a security imposed by the issuer, even if otherwise lawful, is ineffective against a person without knowledge of the restriction unless either of the following applies:
(1)CA Commercial Law Code § 8204(1) The security is certificated and the restriction is noted conspicuously on the security certificate.
(2)CA Commercial Law Code § 8204(2) The security is uncertificated and the registered owner has been notified of the restriction.
restriction on transfer issuer security certificate uncertificated security conspicuous note registered owner notification of restriction knowledge of restriction effective transfer stock ownership
(Repealed and added by Stats. 1996, Ch. 497, Sec. 9. Effective January 1, 1997.)

Section § 8205

Explanation

If someone signs a security certificate without proper authorization, that signature doesn't usually count. However, if the certificate is bought by someone who pays for it and doesn’t know about the unauthorized signature, the signature can still be effective. This is true if the signer is someone like an authenticating trustee, registrar, transfer agent, or an employee responsible for handling the security certificate.

An unauthorized signature placed on a security certificate before or in the course of issue is ineffective, but the signature is effective in favor of a purchaser for value of the certificated security if the purchaser is without notice of the lack of authority and the signing has been done by one of the following:
(1)CA Commercial Law Code § 8205(1) An authenticating trustee, registrar, transfer agent, or other person entrusted by the issuer with the signing of the security certificate or of similar security certificates, or the immediate preparation for signing of any of them.
(2)CA Commercial Law Code § 8205(2) An employee of the issuer, or of any of the persons listed in paragraph (1), entrusted with responsible handling of the security certificate.
unauthorized signature security certificate purchaser for value authenticating trustee registrar transfer agent issuer responsible handling certificate signing lack of authority effective signature employee of issuer notice of unauthorized signature
(Repealed and added by Stats. 1996, Ch. 497, Sec. 9. Effective January 1, 1997.)

Section § 8206

Explanation

This section explains what happens if a security certificate is incomplete or changed. If it just needs blanks filled in, anyone can complete it as long as it's allowed. Even if it's filled in incorrectly, someone who buys it in good faith and didn't know about the mistakes can still enforce it. If the certificate is complete but gets changed improperly or even fraudulently, it's still valid, but only according to its original terms.

(a)CA Commercial Law Code § 8206(a) If a security certificate contains the signatures necessary to its issue or transfer but is incomplete in any other respect, the following apply:
(1)CA Commercial Law Code § 8206(a)(1) Any person may complete it by filling in the blanks as authorized.
(2)CA Commercial Law Code § 8206(a)(2) Even if the blanks are incorrectly filled in, the security certificate as completed is enforceable by a purchaser who took it for value and without notice of the incorrectness.
(b)CA Commercial Law Code § 8206(b) A complete security certificate that has been improperly altered, even if fraudulently, remains enforceable, but only according to its original terms.
security certificate incomplete certificate purchaser for value original terms improper alteration fraudulent alteration enforceable blanks filled good faith incorrectly filled
(Repealed and added by Stats. 1996, Ch. 497, Sec. 9. Effective January 1, 1997.)

Section § 8207

Explanation

This law states that until the formal transfer of ownership is completed, the current registered owner of a security can act as the rightful owner. They can vote, receive information, and exercise all rights related to that security. However, being the registered owner also means they are responsible for any financial obligations, like additional fees or assessments, tied to the security.

(a)CA Commercial Law Code § 8207(a) Before due presentment for registration of transfer of a certificated security in registered form or of an instruction requesting registration of transfer of an uncertificated security, the issuer or indenture trustee may treat the registered owner as the person exclusively entitled to vote, receive notifications, and otherwise exercise all the rights and powers of an owner.
(b)CA Commercial Law Code § 8207(b) This division does not affect the liability of the registered owner of a security for a call, assessment, or the like.
certificated security uncertificated security registered owner transfer of ownership issuer indenture trustee voting rights notifications owner's rights financial obligations call assessment
(Repealed and added by Stats. 1996, Ch. 497, Sec. 9. Effective January 1, 1997.)

Section § 8208

Explanation

This law states that if you're involved in signing a security certificate—like an authenticating trustee or transfer agent—you promise that the certificate is real, you're acting within your authorized role, and you believe the security is legitimate and authorized by the issuer. However, you're not responsible for any other issues with the security unless you agreed otherwise.

(a)CA Commercial Law Code § 8208(a) A person signing a security certificate as authenticating trustee, registrar, transfer agent, or the like, warrants all of the following to a purchaser for value of the certificated security, if the purchaser is without notice of a particular defect:
(1)CA Commercial Law Code § 8208(a)(1) The certificate is genuine.
(2)CA Commercial Law Code § 8208(a)(2) The person’s own participation in the issue of the security is within the person’s capacity and within the scope of the authority received by the person from the issuer.
(3)CA Commercial Law Code § 8208(a)(3) The person has reasonable grounds to believe that the certificated security is in the form and within the amount the issuer is authorized to issue.
(b)CA Commercial Law Code § 8208(b) Unless otherwise agreed, a person signing under subdivision (a) does not assume responsibility for the validity of the security in other respects.
security certificate authenticating trustee registrar transfer agent certificated security purchaser for value genuine certificate scope of authority issuer authorization validity responsibility defects notice signer's capacity
(Repealed and added by Stats. 1996, Ch. 497, Sec. 9. Effective January 1, 1997.)

Section § 8209

Explanation

If a company (issuer) has a claim (lien) on a physical stock or bond (certificated security), that claim is only valid against someone who buys it if the claim is clearly mentioned on the actual document of the stock or bond.

A lien in favor of an issuer upon a certificated security is valid against a purchaser only if the right of the issuer to the lien is noted conspicuously on the security certificate.
lien issuer certificated security purchaser security certificate validity conspicuous notice physical stock bond claim issuer rights security document
(Added by Stats. 1996, Ch. 497, Sec. 9. Effective January 1, 1997.)

Section § 8210

Explanation

This section deals with situations where too many securities have been issued by a company, called an 'overissue'. It explains that some legal actions to validate or reissue securities don't apply if they would cause an overissue. If a duplicate security that's not an overissue can be bought, the rightful owner can require the issuer to buy and deliver it. If no such securities are available, the owner can demand the issuer repay the price paid along with interest.

(a)CA Commercial Law Code § 8210(a) In this section, “overissue” means the issue of securities in excess of the amount the issuer has corporate power to issue, but an overissue does not occur if appropriate action has cured the overissue.
(b)CA Commercial Law Code § 8210(b) Except as otherwise provided in subdivisions (c) and (d), the provisions of this division that validate a security or compel its issue or reissue do not apply to the extent that validation, issue, or reissue would result in overissue.
(c)CA Commercial Law Code § 8210(c) If an identical security not constituting an overissue is reasonably available for purchase, a person entitled to issue or validation may compel the issuer to purchase the security and deliver it if certificated or register its transfer if uncertificated, against surrender of any security certificate the person holds.
(d)CA Commercial Law Code § 8210(d) If a security is not reasonably available for purchase, a person entitled to issue or validation may recover from the issuer the price the person or the last purchaser for value paid for it with interest from the date of the person’s demand.
overissue securities corporate power issuer validation compel issue security purchase certificated security uncertificated security security transfer security certificate reasonable availability purchase price recovery interest on repayment demand for repayment
(Added by Stats. 1996, Ch. 497, Sec. 9. Effective January 1, 1997.)