How to Issue Shares in a Company
How to issue shares in a company? First, examine the certificate of incorporation or articles of incorporation to get the number of shares that may be issued.3 min read
Updated July 1, 2020:
How to issue shares in a company? The first step in issuing shares is to examine the certificate of incorporation or articles of incorporation to determine the maximum number of shares that may be issued. A corporation may not issue any more shares than have been previously authorized.
What Are Issued Shares?
The owners of a company hold the authorized shares, or their ownership interest, in the company. The authorized shares are the originally distributed shares of a company, regardless of whether they are owned by institutional investors, insiders, or the public. A business is legally allowed to issue only the authorized shares of a business. The number of authorized shares is always equal to or greater than the number of issued shares.
Issued share may include two types of stock:
- Publicly traded stock, issued to raise capital.
- Insider traded stock, issued to compensate employees, board members, etc.
Retired shares are not included in the two types of stock.
A share of stock is only issued once and may be exchanged between investors an infinite number of times. Treasury stock is a portion of the total shares that a company keeps in its own treasury. Treasury stock comes from a repurchase, a buyback, or shares that were never issued to the public.
Recording Issued Shares
Capital stock is listed on a company's balance sheet and includes the total number of shares that were issued. The total number of shares outstanding is filed on a quarterly basis with the Securities and Exchange Commission (SEC). Also, the company's annual report includes the total number of outstanding shares.
Importance of Issued Shares
The market capitalization of the company can be calculated using the total number of issued shares and the current stock price. The various calculations help investors determine the performance and value of the company.
Comparing Authorized and Issued Shares
Authorized stock represents the maximum number of common shares that can be issued legally by the company. The number of authorized shares will most likely exceed the number of shares that were issued during a company's initial public offering. The initial corporate filing paperwork, created during the startup process, authorized a certain number of shares that may be issued. Issued shares refer to the number of shares of a corporation that are held by shareholders. The shares may be exchanged for any form of asset that the company believes will help capitalize the business.
How to Issue Shares in a Company: Introduction
The Companies Act of 1993 and the company's own constitution govern the company's right to issue shares. Depending on the guidelines in the constitution, or in the Companies Act, the organization's board may issue as many of the authorized shares as they desire. Upon incorporation (or registration), the next step is to issue the shares to the founding party members.
How to Issue Shares in a Company: Logging Notice of Share Issue
The business then must deliver a notice of issuance to the Registrar of Companies within 10 business days. Failing to notify the Registrar could result in a legal liability and financial penalty for all directors of the company.
How Are Shares Paid For?
A potential stockholder is not required to provide any consideration in exchange for the shares of a company unless it's expressed in the company's constitution. If consideration is required, it may come in the form of cash, future services, promissory notes, personal or real property, or even other securities. Prior to issuing shares, the board of directors should decide exactly what consideration is eligible to be exchanged for stock. The board of directors should make sure that the consideration received will appease the existing stockholders.
How to Issue Stock: Method 1– Deciding Whether to Issue Stock
- Determine if you need to issue stock to raise capital.
- Analyze the benefits of issuing stock.
- Consider the disadvantages to issuing stock.
- Examine all alternatives to issuing stock.
How to Issue Stock: Method 2– Issuing Stock
- Calculate the amount of capital that is needed.
- Review the number of authorized shares that are available.
- Calculate the total value of the shares that will be issued.
- Determine if preferred or common shares should be issued.
- Calculate the total number of shares to issue.
- Stay compliant with federal and state security laws.
- Outline the Stock Subscription Agreement.
- Complete and fulfill the transaction.
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