Settlement Trusts ] [ Stock to Afterborns ]

FAQ’s about Stock to the Afterborns

From time to time, we are asked general questions about the issuance of stock to those born after the passage of ANCSA in December, 1971, and as a service to the Alaska Native community, the following general questions and answers are made available. The following is not intended to be legal advice, and if you have specific questions, we encourage you to call or email us.

 1. What is the procedure to adopt a plan to allow those born after December 18, 1971 (the so-called “afterborns”) ownership in an ANCSA Corporation? 

Normally the Board of Directors adopts a resolution describing the manner in which the afterborns will be permitted stock ownership, subject to approval by 50% plus one of the outstanding Class A shares.  Without this shareholder vote the plan cannot be implemented.

2. Does this mean the Board cannot adopt such a plan on its own? 

            The Board cannot adopt a plan without shareholder approval. 

3. Does ANCSA permit different types of stock for afterborns? 

Yes.  This stock could be identical to the present Class A stock, that is, it is permanent, voting, and with full right to a pro rata distribution when declared.  It could be life estate stock, that is, it could be canceled when the holder dies.  It could be non-dividend, that is, it would not receive any current distributions.  It could be issued only if it is purchased for the recipient.  It could be made to be non transferable, that is, only the specific afterborn could own it. 

4. Would an ANCSA corporation have to issue such stock to all afterborns, or could we limit it only to those born between December, 1971 and before a specific date? 

ANCSA is not completely clear on this, although we think a court would require all afterborns to receive stock (if the shareholders approve).  That is, once the shareholders approve an afterborn program, all afterborns would receive the stock.

5. How much dilution would our existing stockholders suffer? 

No one knows the answer to this, and we recommend that any  Board of Directors conduct a nonbinding survey to try to develop information on this.  Under this approach, each shareholder would be sent a survey, asking them to identify within their own immediate family those persons born after December, 1971 who are not already shareholders.  While this will still not be a complete answer, it will be a good start in beginning to identify how many new shareholders would have to be added.

6. Please give an example of how dilution affects the value for existing shareholders. 

As an example only, assume where were one hundred new shareholders added to a corporation with 500 original enrollees.  Assume further that the corporation has $12 million in net assets, so that each original enrollee’s share of assets is $24,000.  After the 100 new shareholders are added, the share of the net assets for each of the 600 shareholders now is only $20,000.

Of course, the actual calculations of dilution will be based on shares (rather than number of shareholders). However, the math works the same way. 

7.  Does this mean that if an afterborn program is left open, that there are potentially an unlimited number of new shareholders? 

Assuming you decide to leave the afterborn program open, that is, whenever a new baby is born to an ANCSA Corporation shareholder the baby is automatically added as an afterborn shareholder, the total number of new shareholders is potentially unlimited. 

8.  Are there other special factors to think about?  

Yes. A shareholder vote can be held at either an annual meeting or a meeting called just for that purpose. ANCSA requires a minimum of 50 days notice to the shareholders.  As practical matter, this puts at least a three-month lead-time to write a good proxy statement and provide correct notice.  Another factor you will want to give thought to in establishing your time frames is the degree of shareholder education you think appropriate.  Also, ANCSA gives a Board of Directors the right to postpone a vote for any reason for up to 45 days.  This is a good reason for the vote on the afterborns to be held at a special meeting of shareholders.


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Last modified on 05/19/05