If you
intend to issue stocks for your corporation, know that there is more involved
then simply handing an investor a certificate in exchange for their investment.
Not only will you need to familiarize yourself with both the federal and
state securities laws that govern stock issuances, but you will also need to
give some thought to:
How
Many and How Much?
Setting the price and the number of shares your corporation will issue during
its lifetime is a major decision requiring some planning on your part. The
value of a corporation is diluted by both the number of stocks ultimately issued
for sale and also by the price point set. Since you will need to include how
many shares your corporation will be authorized to issue in the articles of
incorporation, you will need to address this issue early on in your company’s
lifetime.
Preparing and Printing the Certificate. In addition to deciding if you will need more than one
type of stock certificate, if issuing more that one class of stock (common,
preferred, etc.), you will need to ensure that specific information is included
on the face of each stock certificate when issuing. You will need to include
the
(1) name of the corporation and under what state laws the
corporation is organized;
(2) name of the person receiving the shares; and
(3) the number, class and designation of the shares being issued and if any are
represented by the certificate(s) being issued.
Other
factors to consider are which officers of the corporation will sign the
certificates, whether the certificate will need to bear the
corporation’s seal and if you are required to state a par value amount on
the certificate. State law dictates these concerns and they tend to vary, so be
sure to either check with a qualified professional regarding these requirements
or familiarize yourself with the applicable sections of the law that govern
these issues. Appendix A provides the website address for each state agency,
which governs business organization. The website also links to the state’s
statutes related to issuing stock.
Keep
Detailed Records.
You are required to maintain a
stock ledger, which records all stock related events (purchases, transfers,
redemptions, etc.). For each stock event, you will need to record the:
-Stock certificate number
-Shareholder name and address
-Number of shares issued, sold or transferred
-Class of shares
-Date of purchase, sale or transfer
-Consideration given (monetary value)
It is
also a good practice for a corporation, particularly a privately held one, to
keep copies of all stock
certificates issued. Your
stock ledger should be kept with other important corporation records such as
your articles of incorporation, bylaws and meeting minutes, as your state does
have the authority to require you to produce these records for inspection should
a question regarding the “legitimacy “ of the corporation be called into
question. Stockholders also have the right to examine these records when
requested. More and more companies are using software to administer their stock
certificates.
Stock certificate administration software not only saves time and money, it
also allows you to proved professional reports to employees and management.
Institute Policies and Procedures.
Just as important as the
actual records themselves is having the appropriate policies and procedures in
place to handle those records. Therefore, take the time to create a written
policy that will guide your employees in handling your stock program. If your
stock program is a traditional paper system, you should develop procedures for:
-determining where and
how your records will be kept (preferably in a secure area),
-who will have access to those records,
-how those records will be filed,
-where backup copies will be kept (offsite storage often recommended),
-what type of audit procedures should be implemented,
-how often to prepare and send shareholder statements, and
what individuals will provide record oversight (should generally have at least
one company officer who takes the time to verify and sign off on the accuracy of
all records).
If
you go
electronic, also consider policies and procedures that:
-establish password
procedures (i.e., how to change a password, lost password, issuing temporary
passwords),
-define who has authorization and access to the system, and
-clarifies the proper procedure for backing up the system and files.
Submit the Appropriate Filings. Depending on how the corporation is organized and its size, you may
be required to file notice regarding any stock transactions with either the SEC
or state securities administrator generally within 15 days of issue. Check with
your state or qualified professional who can assist you in determining whether
you are subject to these filing requirements.
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