Understanding the Stock Structure of Your Corporation

Forming a corporation is a great way for entrepreneurs and small business owners to protect their personal and family assets from the risks of doing business. No matter how large or small the business venture, all corporations have stock—even those that are privately owned. While stock structure and par value of stock shares may sound complicated at first, these helpful tips should help make forming your corporation a breeze.

Forming a corporation is a great way for entrepreneurs and small business owners to protect their personal and family assets from the risks of doing business. No matter how large or small the business venture, all corporations have stock—even those that are privately owned.
 
While stock structure and par value of stock shares may sound complicated at first, these helpful tips should help make forming your corporation a breeze. Let’s start with some simple definitions:
 
Stock: Stock simply represents ownership of the business. For you or anyone else to have an ownership stake in a corporation, shares of stock must be issued. When you form your corporation, you will designate the number of shares that you prefer to issue and those shares will exist as soon as your corporation is filed with the secretary of state. Stock structure is flexible and can be amended as the needs of your company changes.
 
Stockholders: Stockholders are the owners of a corporation. Their interest in the company is proportional to the amount of shares that they own. For example, if a stockholder owns 50 percent of all shares, then he or she is half owner in the company. Stockholders own an interest in the corporation rather than owning specific corporate property. Many small corporations have only one stockholder—the person who started and runs the business. Often, a founder’s spouse or children are stockholders. Other typical stockholders include investors, friends, business partners and employees. Stockholders are also referred to as shareholders.
 
Stock certificate: A stock certificate is the physical evidence of ownership of shares in a corporation. It is also referred to as a share certificate.
 
Par Value: Par value is the minimum selling price for a share of stock. Stock may be sold at any price equal to or above the par value (whatever the market will bear), but stock may not be sold below the par value. The par value is designated when the corporation is formed but may be amended as the needs of your company changes.
 
Hopefully, stock shares and par values no longer sound mysterious. Here are some helpful “stock tips” when forming your corporation:
  • Ask for a corporate kit that includes a stock transfer ledger to help keep track of all company stock transactions. Your corporate kit should also include sample and blank stock certificates.
  • Some states allow you to designate a $0/share par value. Business owners often select a zero par value for the greatest stock-pricing flexibility for the future.
  • Some states have a maximum number of shares that they allow while staying within the lowest franchise tax payment. If so, then selecting that number of shares will give you the greatest flexibility at the lowest franchise tax cost. For example, Delaware allows up to 1500 shares of stock to be issued without any increase in annual franchise tax. You can always amend your corporation at a later date if you need to issue additional shares.
 
The Company Corporation, the industry leader in small business formation services, provides traditional corporation, S corporation, and LLC formation services to small business owners, entrepreneurs, and real estate investors nationwide. The Company Corporation offers the
products and services that business owners need to form and manage a company at www.incorporate.com.