As a business owner, you may want to issue stocks for a number of reasons. This includes, among others, the need to prepare for a finance-intensive event. However, getting through this process can be complicated. It’s even more challenging when you consider the complexity of every other business-related task on your table. In this expert guide, we’ll let you know all you need to issue stocks in your company.
How to Issue Stocks?
What is a Company Stock?
Stocks refer to the funds a company raises as capital to begin the operation of its business. Single units of corporate stocks are known as shares. They determine the level of ownership that a shareholder has in the company once issued.
People usually purchase these shares in one of two ways. The first is through a regulated stock exchange. The second is through private channels. Companies can also issue the shares through an initial public offering.
Keep in mind that owning an issued stock/authorized shares doesn’t necessarily mean a person would be legally obligated to the business.
Many shares issued are often approved by the board of directors, depending on the amount of capital needed to be raised. This approval is often necessary for large companies to have outstanding shares on any type of stock.
Types of Stocks
There are two types of stock that you could get in business, which are not exactly on par with each other. They are:
1. Common stock
If you’re new to business terms, you might be tempted to think that this type of stock is another ironically ambiguous name. But in retrospect, the name is exactly what the stock is: common. Usually, anyone in the general public looking to go into an investment for the first time will purchase common stocks issued shares with their capital, as they seek to build a diversified portfolio that can provide long-term financial growth and security, while strategically exploring opportunities for a high return investment potential.
As a new and authorized common stock owner, you enjoy a reasonable amount/number of financial benefits. You’ll also get voting rights in company decisions, depending on the size of your stock. Apart from these voting rights, you can earn dividends on your stock. These dividends are essentially cash payments that the company makes to stock owners regularly. However, the dividends don’t usually come with any amount of guarantees.
If you hold common stock for long periods, you’re likely to earn huge financial rewards. This, of course, depends on the level of new company/corporation growth. However, it’s also worthy of note that common stocks have the greatest risk attached to them and their capital.
2. Preferred stock
This is the opposite of common stock in business. It isn’t as easily found or acquired as its counterpart. But, those who own it get a fixed dividend regularly. These stocks are often compared to government bonds. Besides their fixed dividends, those who own preferred stock usually get preferential treatment.
For example, if the company goes bankrupt, preferred shareholders would get their cash paid first. Common shareholders may have to wait until much later to get paid the amount of money owed. The same thing goes for dividend payments. Unlike their common counterpart, preferred stocks usually don’t have such high risks of losing value. However, they also don’t have such a high potential of gaining value either.
Issuing Stocks
The following steps our experts outline what you should do to issue stocks:
Determine the Shares to Issue
Before issuing stock, you should know the type you want to issue. In this regard, you have two broad options. They are common and preferred shares.
Preferred shares don’t allow shareholders, new or not, the rights to vote in business. New and old individuals with preferred shares will, however, get preferential treatment from the business.
Common shares, on the other hand, allow shareholders, new or otherwise, to vote in business. Common shareholders may vote and raise issues, depending on the extent of business/share ownership. Your articles of incorporation [1] can help you know the maximum number of shares of stock you are authorized to issue.
Assess your Stock and Company Value
Before you can go about issuing stock, you should determine your stock and company/business value in this step. That way, you’ll be able to tell how much each share should be worth in the company. There are several methods you can use to assess your company’s value.
One of them is the price to book ratio. This element shows how much you’re worth if you get torn up and sold instantly as a company/corporation. Another method is the price-to-earning ratio.
Regardless of which method you choose, ensure that you value your stocks and shares as best as you can. You wouldn’t want to deal with any financial issues the future might raise from poor valuations.
Comply with State Security Laws
If you are issuing stock, you must ensure that you’re compliant with federal and state security laws for your business. However, learning these laws by yourself can be tedious.
The best thing to do would be to hire an attorney. This can be in the form of an online legal service. The advantage of this is reduced cost. Alternately, you can hire a traditional attorney. This doesn’t offer much of an advantage over the former. In fact, it could lead to higher costs, given the expensiveness of traditional attorneys. However, it will help satisfy your preference. In Nevada, for example, you have to register with the state and federal government before you issue a share.
Prepare Agreement
By now, you must’ve successfully determined the corporate shares and securities for issuance to public investors. Additionally, you shouldn’t have any trouble with your corporate stock/share, securities, or company/corporation value per share. At this point, it’s time to prepare an agreement for your different public shareholders/investors. This document, like articles of incorporation, will detail everything that’s relevant to your different corporate stock/shareowners. This includes securities’ issuance details that cover every part of the transaction for each shareholder.
When you’re preparing agreements in this step, you should follow a few guidelines. They are:
- Never complete the process without consulting a lawyer first. Even if you get a stellar template online, consult your lawyer.
- The agreement should outline everything important to the shareholders. This includes the number of shares/securities, the price per share, transaction date, total cash received, etc.
- Print out hard copies for your shareholders and investors upon issuance. As the name implies, it will serve as the agreement guiding your relationship with them.
Given the amount of information this provides in the process of issuing shares, you could compare it to stock certificates.
(As a corporation, you are exposed to a lot of corporate work and documents, thus conducting an accurate record keeping is crucial to make your company running)
FAQ
How does a company issue stock?
A company issues stocks by following a series of steps. The first is to determine the shares to issue. The second is to assess the stock value. Afterward, the company/corporation will need to ensure compliance with state laws. Finally, they will prepare an agreement for their shareholders.
Conclusion
Issuing company/corporation stocks might be intimidating if you’re not very familiar with how to issue stock. However, it is necessary to issue shares, especially when you need to raise capital. In this expert guide, we’ve provided details on how to issue stocks as a company/corporation. All you need now is to implement the steps above.
If you are planning to create an LLC, here are the top LLC formation services we reviewed for you. Read next!
