Issuing corporate shares is relatively straightforward when a either a solitary or very minimal number of company founders seek to procure such shares and is significantly more complex when numerous investors are interested in acquiring a portion of an affected distribution of corporate shares. When answering questions about corporate share distribution, it is important to understand the foundations of the process before discussing the nuances of the process issuing corporate shares.
The Basics of Corporate Shares by the Numbers
During the formal incorporation process, businesses structured as corporations are usually compelled to draft specific kinds of corporate records. They must also generally purchase stock certificates and set up a share register in order to track and account for stock transfers. Within a company’s articles of incorporation and corporate charter, authorization is granted for the business to issue a certain number of corporate shares.
It is important to understand that a corporation may not issue more shares than are explicitly authorized in this share register document. If a corporation ultimately wishes to distribute more corporate shares than are originally authorized, formal changes must be made to the corporate charter. It is also important to note that a company does not have to issue as many corporate shares as are originally authorized by the share register. The number of corporate shares permitted for distribution according to a company’s articles of incorporation is a cap, not a mandatory minimum.
When a solitary founder seeks to obtain corporate shares, he or she generally invests capital and receives shares in exchange for that investment. This is a common scenario when the company’s founder intends to keep the business small. The number of private shares issued and their corresponding price is essentially up to the solitary owner at this point as stated in the share register. This scenario is relatively arbitrary only because it involves a solo founder. The percentage of ownership in a corporation is determined by the number of corporate shares held individually as compared to the total number of corporate shares issued overall. If only one individual has been issued shares, that person holds total ownership in the company regardless of how many corporate shares that individual has distributed to himself or herself. The process becomes understandably more complex when multiple individuals seek to benefit from distribution.
The Share Distribution Process
As ownership percentage is determined by the number of shares held by each individual as compared to the number of shares distributed overall, it is important in the ownership percentage to consider the number of corporate shares a company wishes to distribute at a given time. Because a company is not obligated to distribute all shares initially authorized under its corporate charter, it is worth contemplating the consequences of allowing some potential shares to remain in reserve rather than distributing them at once. This decision could have positive or negative effects down the road because distributing more shares later will dilute the strength of initial individual shares by decreasing their ownership percentage per share. More investors with less power per share may or may not be an ideal scenario for a specific corporation.
It is worth noting that a corporation’s board of directors may need to approve distribution and that the state may be notified when corporate shares are released. The specific legal steps that any individual corporation must take during share distribution may be discussed with an attorney.
Answers to Additional Questions
If you have any additional questions about corporate shares, amending a corporate charter or other legal matters related to business, please consider contacting LawTrades. Our experienced team takes great pride in aiding businesses meet their legal needs from financing the visions of startup founders to protecting the intellectual property created by established companies. If you or your business could benefit from legal counsel related to stock or share distribution, financing, recruitment or a host of other corporate challenges, please reach out to LawTrades today.