Checklist for Issuing Stock in Your Startup Company

If you are planning to issue stock, there are a number of important steps that should be undertaken, including the following:

• Board Approval. The Board of Directors of your corporation should approve the offer and sale of the stock, any agreements for the sale, and the filing of any needed government documents. This approval can be accomplished with resolutions adopted at a Board meeting or by written consent.
• Shareholder Approval. Approval of the shareholders of the corporation may also be necessary for the offer and sale of shares of stock, particularly if the Articles (or “Certificate” in some states) of Incorporation are being amended in order to approve the issuance of stock. Amending the Articles (or Certificate) typically requires approval by a majority of the holders of outstanding shares, either by resolutions adopted at a meeting or by written consent.
• Review the Articles (or Certificate) of Incorporation (Company Charter). The corporation’s Articles (or Certificate) of Incorporation (Company Charter) should be reviewed to be certain that you have enough shares authorized to allow the new issuance of shares.
• Review Compliance with Securities Laws. Before an offer or sale of stock can take place, you need to ensure that the proper steps have been taken to comply with federal securities laws and the securities laws of the states where the offer or sales of stock are made. Typically, you will want to find a private placement type of exemption to avoid the costly procedures of conducting a registered offering.
• Prepare Appropriate Agreements. It is important to document the sale of stock. A Subscription Agreement is appropriate when the transaction is not really negotiated, such as the sale of Common Stock to friends or family. When the transaction involves venture capitalists or strategic investors, a more detailed negotiated Stock Purchase Agreement will be necessary.
• Review How the Sale Will Affect Future Action. The corporation should review how the issuance of stock might affect future financings. Ideally, the issuance of stock should not unduly restrict the ability of the corporation to issue additional stock in the future.
• Price and Number of Shares. The appropriate price for the shares and the number of shares issued needs to be established.  The dilution to the existing shareholders resulting from the new issuance must be reviewed and deemed acceptable.
• Make Securities Law Filings. Required filings with the Securities Exchange Commission (SEC) and any state securities administrators must generally be made within 15 days of the stock sale. The SEC form for a Regulation D offering is available for review at www.sec.gov.
• Stock Certificate. The corporation should issue a Stock Certificate after the sale of stock. Each certificate must be dated, numbered, and signed by the appropriate officers of the Corporation. It is a good idea to make a copy of each Stock Certificate for the company records.
• Stock Ledger. The issuance of stock should be recorded in your corporation’s Stock Ledger, showing the stock certificate number, name and address of each shareholder, consideration paid, and other relevant information.