It is quite common during the course of legal due diligence to discover that a target company has issued more stock than it had legally authorized through its certificate of incorporation.  Many companies, particularly emerging growth companies, are often too preoccupied with ambitious growth plans and raising critical private capital and overlook basic corporate housekeeping.  Or they dole out lots of equity to employees and business partners in order to conserve much needed cash, but forget that there is actually a legal limit to the number of shares they can grant.  These and other legal flaws, or “defective corporate acts,” can exist undetected for years in privately held companies, but they come to light at the worst possible time – when the company is being sold or when a significant capital raise is being undertaken.  Previously, the lawyers would advise that these past errors placed a troublesome legal cloud over the company that presented risks that...

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