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I'm incorporating a very small company, I have a few investors who
will own maybe 5% of the company. Should I issue the remaining 95% of
the stock to myself? Or should I issue some (most?) of the stock to
myself and leave the rest with the corporation? If I get another
investor who wants, say, 1% of the company, would it make any
difference if I sold him some of my stock or had the company issue it
to him instead? I'm sure there are tax implications, I'm not thinking
about those right now, I'm just trying to figure out what the
considerations are in the decision of whether or issue 100% of the
stock or to leave some stock "un-issued." Thanks for your help!
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On Mar 21, 4:19=A0pm, HankM <H...@webfeats.com> wrote:
I'm incorporating a very small company, I have a few investors who
will own maybe 5% of the company. Should I issue the remaining 95% of
the stock to myself? Or should I issue some (most?) of the stock to
myself and leave the rest with the corporation? If I get another
investor who wants, say, 1% of the company, would it make any
difference if I sold him some of my stock or had the company issue it
to him instead? I'm sure there are tax implications, I'm not thinking
about those right now, I'm just trying to figure out what the
considerations are in the decision of whether or issue 100% of the
stock or to leave some stock "un-issued." Thanks for your help!
You should talk to your accountant and a local corporate lawyer, but
from a legal standpoint you can ordinarily issue stock whenever you
damn well please, although most close corporation incorporators issue
sufficient shares of stock at the first meeting when by-laws are
approved and officers and directors are installed. In my state all
of these roles can be played by just one person. Issue a thousand
shares, 50 to your investors and 950 to yourself.
And, no, this is not legal advice because I haven't practiced in
decades.
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If you are in the USA and you have to ask that question then you should not
be incorporating at all but establishing a Limited Liability Company. An LLC
is far more flexible in how you can arrange and rearrange ownership; you can
have it taxed as a corporation but the default (and usually better) option
is to be taxed as a partnership (or disregarded entity, if there is a single
owner or in certain cases of spousal ownership and community property).
A corporation involves formalities (books, annual meetings, reports) that
nave managers may fail to respect, and in that case the corporation and its
shareholders lose the protection of limited liability.
That said, in general a corporation does not issue all its shares at the
initial offering because it would not be able to issue more later without
amending its charter.
If you are selling interests (securities) to the public (outside your
immediate family), make sure you do not fall afoul of blue sky laws in your
jurisdiction. If your investors lose money they will seek redress against
you. A lawyer's advice is cheap insurance.
In some jurisdictions, England among them, a company (corporation) must have
at least two shareholders to insure limited liability (the immunization of
the shareholders against corporate debt).
On 22/03/2008 03:30, in article
e5c29555-ef1d-44ff-afed-5fffc58f52d2@a70g2000hsh.googlegroups.com, "jl"
<jls1016@bellsouth.net> wrote:
On Mar 21, 4:19pm, HankM <H...@webfeats.com> wrote:
You should talk to your accountant and a local corporate lawyer, but
from a legal standpoint you can ordinarily issue stock whenever you
damn well please, although most close corporation incorporators issue
sufficient shares of stock at the first meeting when by-laws are
approved and officers and directors are installed. In my state all
of these roles can be played by just one person. Issue a thousand
shares, 50 to your investors and 950 to yourself.
And, no, this is not legal advice because I haven't practiced in
decades.
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Thanks, folks, I appreciate the information and the advice!
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