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Incorporation
Shares of corporate stock are a fraction of ownership in a company. The most popular types are common stock and preferred stock.
The most basic level of stock is called "common stock." Common stock is an ownership share in a corporation with rights to vote on management and corporate policy. Common stock is not preferred over other classes of stock in terms of dividend payments or asset distribution. It is usually the only class of stock with voting rights.
Sometimes, there is another level of stock known as "preferred stock." Preferred stock generally has greater rights over common stock when it comes to receiving dividends and/or corporate assets (in case the corporation is liquidated). Preferred stock can also have special voting characteristics, the ability to convert into common stock, the right to require that the company repurchase the stock at a later date (redemption) and other features allowed by state law.
When required, the articles of incorporation must state the maximum number of shares of stock that can be issued. There is no need to actually issue the maximum number of shares – you can issue a lesser number. For example, if a corporation has two stockholders, you can authorize a maximum of 1,000 shares, but give each stockholder only 250 shares. This way, you have the flexibility to add more stockholders. Otherwise, if additional shares were needed, the articles of incorporation would have to be amended. There is no maximum on the number of shares that can be authorized. However, some states do base their annual corporation fee on the number of authorized shares.
In some states, the "par value" must be stated on the articles. Par value is a dollar value assigned to each share, regardless of its market price. Par value is simply for accounting and tax purposes, since stock can be sold at whatever price a buyer is willing to pay. The corporation, however, cannot sell stock for less than its par value. And since some states base their annual corporation fee on the total par value of the stock, it is advisable to choose a low par value, such as $0.01 or even $0.001 per share.
The sale of stock is subject to federal and state securities laws. Generally, if you are not advertising the sale and are dealing only with a small number (less than 35) of knowledgeable and sophisticated investors or people you know personally, you will be exempt from the regulations. If, however, you are seeking to raise a significant amount of money from a large number of investors, you should consult with an attorney.
To learn more and speak with a representative, please call us at (888) 381-8758. We are happy to answer any questions you may have.
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