Understanding the Basics of Share Offerings for a Corporation

By |
EDT

There are certain basic features and powers that every corporation holds. One corporate power is the right to sell stock in exchange for ownership in the company.  The purchasers of the shares become owners and are also known as shareholders or investors. A shareholder can gain ownership through receiving stock grants, awards, and gifts. The distribution of these shares is a feature or right that the corporation holds. Colonial Stock Transfer can manage the distribution of shares and stockholder records for your company, using its transfer agent and registrar services.

Small Corporations

Corporations may be owned by one or hundreds of thousands of individuals. As a corporation is formed, the incorporation articles will indicate the amount of authorized stock the company is permitted to issue. In exchange for the issuance of shares, the owner will capitalize the corporation with contributed money, services or property. If it is owned by one individual, 100% of the issued and outstanding shares will be held by the sole-owner.  As the sole-owner gets possession of the shares, they will have power under the state Corporation Act to sell some or all the shares. They can then increase the authorized shares as needed through an amendment filed with the State of incorporation.

Private vs. Public Sales

There are requirements for a corporation selling stock to raise additional funds.  Stock sales to the public are regulated by federal law. A corporation that wants to sell stock to the general public must first register as a public corporation with the U.S. Securities and Exchange Commission (SEC) through a registration statement filing, also known as an IPO offering filing. After the registration statement is submitted, a public corporation must comply with financial reporting regulations on a quarterly basis.

A corporation may sell stock to private parties without having to register as a public company. A single sole-owner may sell private shares to friends, family, and investors at his discretion through complying with Regulation D (submitting a Form D filing to the SEC). If you are looking for Form D filing or Blue Sky State Reporting services, contact us to learn more.

Equity Dilution

A sole-owner of a corporation should consider that selling shares inside a company is going to dilute their equity position. The stock percentage that is owned by outside parties is going to increase while lessening the original owner’s percentage. Unless an owner retains the majority of the outstanding shares, they is at risk of losing control of his company through shareholder vote.

If you need a professional transfer agent to manage the share registry needs for your private company, contact Colonial Stock Transfer.