Issuing Stock from Your Corporation

A new business will not issue all the authorized shares at the outset. Some percentage of shares will be held (or remain unissued shares), to be issued at a future date to new investors or employees. The most important factor for new business owners to remember is that when issuing stocks, the percentage of shares a person owns gives that individual a larger share of ownership in the company. Regardless of the price per share, if one person holds 51 percent of shares issued, he or she has the largest percentage of ownership (assuming all of the shares are in one class).

A corporation needs not only to be established in conjunction with the rules of incorporation under the laws of the individual state, but must also be maintained as such by following ongoing requirements and formalities. Numerous corporate improprieties in recent years have created a business climate in which corporate regulations and formalities are now being more closely scrutinized.

The issuance of stock must be in compliance with federal and state securities laws. This is an area in which you definitely need help from an experienced corporate attorney. A small corporation, issuing stock to only family members and those individuals who have been active in forming and running the company, is exempt from having to register such securities offerings with state or federal agencies. (However, you still have to jump through some hoops and make appropriate filings to take advantage of this exemption.) If the stock is issued to a limited number of individuals and not made available to the general public, you may not need to register the stock. Registration is necessary if the stock will be sold to a large number of outside investors, by brokers or in the open market.

Check out AllBusiness.com's Checklist for Issuing Stock. Also read Raising Capital for Small Businesses by Selling Stock.