Legal Definitions - overissue

An overissue occurs when a company or other entity creates and distributes more financial securities (such as shares of stock, bonds, or investment units) than it is legally authorized to issue. This authorization limit is typically established by the entity's foundational legal documents, like its articles of incorporation, or by specific regulatory approvals and resolutions.

Here are some examples to illustrate this concept:

• Corporate Stock: Imagine a rapidly growing tech startup whose corporate charter explicitly states that it is authorized to issue a maximum of 50 million common shares. During a subsequent round of fundraising, due to an administrative oversight, the company inadvertently issues 51 million shares to new investors.

  This situation represents an overissue because the company has distributed 1 million shares beyond the legally permitted 50 million share limit set by its own foundational documents.

• Municipal Bonds: A city government receives voter approval to issue $100 million in municipal bonds to finance a new public transportation project. However, when the bonds are officially offered to the market, a clerical error in the bond offering documents leads to the sale of bonds totaling $105 million to various investors.

  This is an overissue because the city has sold $5 million more in bonds than the $100 million limit that was explicitly authorized by the voters and the city's governing body.

• Investment Fund Units: An investment fund's prospectus, which is its official offering document, clearly states that it will cap the total number of investment units at 1 million to maintain a specific portfolio structure and management strategy. Due to an unexpected surge in investor interest and a processing error, the fund's administrator accepts subscriptions and issues 1,005,000 units.

  This scenario constitutes an overissue because the fund has created and distributed 5,000 units beyond the 1 million maximum specified in its official offering memorandum.