The
issuance of capital stock is addressed in the corporation’s
articles of incorporation. Therefore, a corporation will tackle this topic
early in the corporation’s infancy. In the articles of incorporation, the
corporation will need to establish the number of shares it will be authorized to
issue. If the idea of trying to pinpoint the exact number of shares you think
you will need over the corporation’s lifetime fills you with panic, take a deep
breath. The number of shares issued can always be amended later so do not
fixate on the numbers for too long.
Other
issues that need to be addressed in the articles of incorporation related to
stock issuance include:
-whether stocks will have a
par or
no par value,
-whether stocks will be divided into more than one class ( such as common and
preferred),
-the designation of each class or series of stock,
-a statement of the preferences, limitations and relative rights of the shares
of each class, and the authority, if any, of the board of directors to deal with
variations in the rights and preferences between the stock series.
In the
articles of incorporation, the company must authorize one or more classes of
share that have unlimited voting rights and that are entitled to receive the net
assets of the corporation upon dissolution. If more than one class of shares is
authorized, you will need to outline clearly, which shares have special,
conditional or limited voting rights (or no voting rights at all).
The
language in the articles pertaining to share authorization can be very basic.
This is often the case when the corporation plans to issue only one class of
stock (i.e.
common stock).
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