Corporations issue stock to raise money.The amount of money invested in the company is represented by the shares that are issued.The shareholders of the company have rights such as voting and the receipt of dividends.When organizing your corporation, it is important to consider how to issue stock.
Step 1: You should know the basics of issuing stock.
Issuing stock is one of the ways to raise money.Capital is needed if your business is new or growing, and issuing stock involves selling pieces of ownership to investors in exchange for cash.Issuing shares involves determining how much capital you need, and then determining an appropriate amount of shares to issue in order to raise that capital.If you decide to issue five shares to yourself, each one would be worth $1,000.You would own 100% of the business if you owned five out of five shares.Since you have to pay for the shares, you need to put $5,000 of your own money into your business.If you decide to issue an additional five shares to other investors for $1,000 each, you will see your ownership drop to 50%.Five of yours and five belonging to other investors bring your ownership down from 100% to 50%.
Step 2: The benefits of issuing stock are reviewed.
Debt is the other way to finance your business.Issuing stock is an option that may be appropriate for your business.If you are a new business or a business with a poor credit rating, acquiring debt may be impractical.Businesses with little or poor credit are often charged higher interest rates.You have more cash available if you issue stock.You will need to use up your cash flow to repay the loan, but you will also have to pay interest.This depletes your profits each month.Acquiring more debt makes your business riskier.How much of your assets are owned by shareholders and how much by lenders is looked at by investors.The riskier your company is, the more risky it is for future investors and future lenders.Your assets will have to be paid back before shareholders receive their share if your business fails.
Step 3: There are drawbacks to issuing stock.
Issuing stock means giving up a piece of your ownership in the business, which also means sharing your profits, sharing decision making, and sharing in all future growth of the company.You will need to buy out the other shareholders in order to get your ownership back.The smaller your ownership is, the more shares you issue.You may not have as much say over the future of the business.
Step 4: Consider other options for issuing stock.
There are benefits to using debt in your business.When you use debt, you don’t diminish your ownership in the business, and the lender has no control over what you do with your business.Loan payments don’t fluctuate so you can easily plan for them.Interest payments are tax deductible so they can reduce your tax bill.In addition, once the debt is paid off, you get to keep all the profits that will be made from the loans, whereas with issuing stock it would need to be shared with shareholders.If you have a profitable and stable business, issuing debt is a good idea.
Step 5: Determine the amount of capital you need.
It is very likely that you will need the shares to fund some part of your business if you are not issuing shares for no reason.Add five new trucks to your fleet for $20,000 per truck, if you own a delivery business.$100,000 of capital is required.This amount will guide the entire process of issuing stock, as it will help you determine how many shares to issue and at what price per share.
Step 6: Determine the amount of stock the corporation can issue.
The maximum number of shares that the corporation can issue to potential shareholders is set in the Articles of Incorporation.The corporation does not need to issue all of those shares.If necessary, new corporations will likely hold back shares so that they can raise capital later on.The authorized amount may be 100 shares.No more than that can be issued without formal modifications to the Articles of Incorporation.
Step 7: Determine the value of the shares that will be issued.
You can determine the value of the shares once you know how much capital you need and how many shares you can issue.If your business is just starting and you plan on putting your own money into the company and issuing shares to yourself, the value you assign to each share doesn’t matter.If you put $100,000 of your own money in to fund a fleet of trucks, you can technically price each share at $100,000 per share and only issue one share.It is wise to make the shares less valuable.If you have 100 shares that you are authorized to issue, issuing only one share to yourself means that once the remaining 99 shares are issued potentially to other investors, you will own only a very tiny portion of your business.You can issue 50 shares to yourself if you make the shares worth $2,000 per share.When the other 50 shares are issued later on, you will still own 50% of the business because you used half the 100 authorized shares.The sales price of the share does not need to be equal to the par value.You can issue preferred shares, which give shareholders certain rights before common stock holders, and require them to pay the par value as well as additional paid-in capital, if you choose to do so.
Step 8: The class of the shares will be determined.
Common shares and preferred shares can be issued.Both shares allow the shareholder to own a piece of the business, but they differ in terms of voting rights and other factors.A preferred share that does not have voting rights is usually the one that gets the first claim on the company’s assets in the event of a bankruptcy.If your business goes bankrupt and assets need to be sold, preferred shareholders would first be contacted to make sure they are properly compensated.Common shareholders would get the remaining money.Depending on the issue, preferred shareholders may have unlimited, limited, or no voting rights.Common shares can be used to participate in profits and the proceeds from asset sales after preferred shareholders are paid.If your business has $100 in profits, each shareholder is entitled to $5 per share.If there are five preferred shares, the first $25 would be paid to the common shareholders.The preferred shareholders would only be compensated if the profits were $25The ideal mix of shares to issue should always be decided on by an accountant or lawyer.Depending on how much voting control the company wants shareholders to have, as well as the amount of flexibility they want with profits, every company has a different preference.
Step 9: Determine the number of shares to be issued.
It is possible to determine the number of shares your business should issue through some simple calculations if you know the value of each share, the amount of capital you need, and are authorized to issue.Start with the amount of capital you need.If each share is worth $2,000, you can determine how many shares you need to issue by dividing the amount of capital by the value per share.You would need to issue 50 shares to give you the capital you need.
Step 10: Make sure you are following the law.
If you are planning on issuing stock of any kind, you need to involve a lawyer because the law surrounding the issuing of stock is very complex and detailed.A lawyer can guide you through the process of issuing stock, but he can also make sure that you comply with all state and federal securities law.
Step 11: The stock subscription agreement needs to be drafted.
After you have decided how much stock you need to issue, the value, and all the other relevant details, it is important to create a document that details everything surrounding the transaction and issue stock certificates to all of the shareholders involved.A stock subscription agreement is a document.A lawyer should be consulted before this document is created.It is important for a lawyer to look over all the details in a template to make sure they work for you.The amount of shares, price per share, date of transaction, cash received, and payment method are all outlined in the stock subscription agreement.It will show the risks and responsibilities associated with being a shareholder.You have to give your shareholders hard copy shareholder certificates after the agreement is made.The shareholder’s name, amount of shares held, value of the shares purchased, and any special rights granted to the shareholder are listed in this document.When crafting share certificates, always consult a lawyer.
Step 12: The transaction needs to be completed.
The issuing of shares is the simplest part if you decide on all the details.In exchange for providing share certificates indicating ownership, the issuing of shares consists of receiving the amount of cash specified in the stock subscription agreement.You would receive a $100,000 check from your shareholder, and then issue certification that the shareholder owns 50 shares at $2,000 per share.Stock certificates can be issued in exchange for assets other than cash, and this is known as “non-cash consideration”.It is possible to issue shares to a supplier in exchange for machinery, instead of cash.If a very specific asset is needed more than cash and the provider is interested in being a shareholder, this is useful.If you need a particular asset and know a shareholder that can provide it, this can happen.Discuss this option with your accountant.For a large multi-million dollar corporation, the act of issuing shares often involves extensive consultation with investment banks and teams of professionals.Large corporations typically issue stock to the general public through a process called an Initial Public Offering, and banks are required to find buyers for the large number of shares.