Capital is an important part of starting and growing your business. While there are a variety of ways to raise capital, issuing stock is a basic way to raise funds to grow your business. Corporate issuance of stock involves selling pieces of business ownership to investors in exchange for capital.
Understanding Corporate Issuance of Stock
Corporate issuance of stock refers to the prospering issuing and documenting of a company’s securities which include the likes of stock, options, and warrants. The shares of the stock of the corporation represent ownership in the Corporation.
Corporate stock issuance typically happens during the formation stages of the corporation, but continues throughout the corporation’s life cycle as its stocks change. First, a corporate needs to decide on how much capital is needed, and then decide on an appropriate amount of shares to issue.
The benefits of stock issuance will vary for privately and publicly held companies, but certain benefits such as debt reduction and avoiding illiquidity are constant across companies.
Corporate issuance of stock has many benefits including providing funds for companies that have a poor credit rating and are unable to acquire a loan, or want to avoid the interest charged by lenders. Issuing of stock also leaves the company with more cash available than the alternative of debt financing.
What is Required for the Process?
Setting up a corporation can be complex and stressful at times. There are several legal procedures that need to be fulfilled in order for the business to be legally valid.
Issuance of stock is another example of a corporate decision that can be complex and detailed. The issuance of stock occurs for a variety of reasons including fulfilling the role of a securities offering, raising capital or providing an incentive for employees.
In each instance of stock issuance, board approval is required. This approval can be given either by written consent, or at a board meeting. Without the approval of the company’s board of directors, the issuing of stock is not valid. The reason for this precaution is to ensure that the company’s capitalization records are in order without wasting time and money unnecessarily.
While the articles of incorporation of a company will authorize the number of shares of stock that the corporation may issue. A document that establishes the legal terms is still required.
Although not required, shares are normally represented by certificates. In Florida, there are certain requirements of a share certificate in order for it to be valid. For example, each share certificate must state the name of the issuing corporation, the name of the person to whom it is issued, and the number and class of shares including the designation of the series, if any, that the certificate represents.
The Role of the Corporate Attorney
Handing over ownership of your company means sharing profits, decision making and the company growth. The services of a corporate attorney are extremely valuable in this instance to legally finalize all details. Legally, the issuing of stock is complex and detailed. A corporate attorney will have the expertise to advise you on the technicalities of issuing stock as well as assist in ensuring that your company complies with all state and federal law.
In Florida, the law states that the number of shares a profit corporation is authorized to issue needs to be stipulated in its Articles of Incorporation. Even though it is not required, it is advised that corporates issue stock to indicate ownership. When no shares are issued, it means that no individual owns the corporation.
Hiring a corporate attorney to assist with both the formation of a corporation as well as the issuance of stock will ensure that your business complies with all security’s laws, that all necessary documentation is prepared accurately and that the interests of the individuals within the business are protected.