Switzerland County

When you issue stock, you are deciding to divide the corporation's ownership and thus its profits.

1. A limited number of purchasers (usually 35 or fewer);
2. Have not advertised the shares for sale;
3. Only have purchasers who have a pre-existing relationship with you or other directors or officers;
4. All purchasers have signed a purchaser's warranty saying they are purchasing stock for investment, nor with the intent to resell it.

• Remember that each time you issue a share of stock, you are agreeing to divide the corporation's ownership and profits into smaller pieces. Stock is not just a piece of paper - and you can't get it back! If you don't want to give up ownership, but need cash, consider borrowing from a bank or a shareholder and paying the loan back with interest.
• Make sure that the total value of the stock you are issuing is enough capital for your corporation to operate the first year. The biggest mistake new businesses make is to be under-capitalized. Be sure to evaluate your cash flow requirements, so you can pay bills even if your customers haven't paid you.

• Even the spouse who is not a record owner of stock can sell his or her "beneficial" ownership interest in the stock.
• Even if a spouse has separate ownership of stock, if (s)he incurs shareholder liability during the marriage, the couple's community property may be used to satisfy that debt.

The Board of Directors can require that all new shareholders sign a buy-sell agreement which requires them to give other shareholders or the corporation the first right of refusal in any sale or transfer of shares. The sample agreement also includes repurchase provisions in case a shareholder dies or becomes disabled.

WARNING: All shareholders and their spouses should review the buy-sell agreement with legal counsel before signing. This agreement can significantly affect the signers in times of uncertainty - such as divorce or death - and in many ways can be more important than the corporate bylaws. All signers should understand and agree to all parts of the agreement - or modify the agreement as needed. For further information about buy-sell agreements, review "Making the Most of Buy-Sell Agreements" from the Journal of Accountancy.

1. The Board of Directors should determine the value of each share of stock and the total value of stock to sell - for either cash or non-cash. If non-cash is accepted, the Board of Directors must determine the value of the non-cash contribution. All of these decisions should be recorded in the minutes of the initial meeting of the Board of Directors.
2. If the stock price is not $1 per share, divide the total value of stock the corporation is selling by the value per share to determine how many shares of stock to issue. Verify that you are issuing fewer than the shares authorized in your Articles of Incorporation.
3. The Board of Directors must decide whether to require shareholders to sign a buy-sell agreement. If so, this should be documented in their meeting minutes. A paragraph, or "legend" referencing the buy-sell agreement should be typed on each stock certificate.
4. Collect the funds from each shareholder. Make checks payable to the corporation. Issue a stock certificate. Issue a receipt showing whether it was paid in cash or the non-cash contribution and its cash equivalent value. Have the stock purchaser sign a Purchaser's Warranty and place it in your corporate records. Prepare one stock certificate for each shareholder, showing how many shares they purchased.
5. Make a copy of the completed stock certificate for your records. Note: Although a corporate seal is not required by law, if the Board of Directors chooses to require one, the seal can be placed anywhere on the certificate.
6. Record the information from each certificate on the corporate register. You must list the date the stock was issued, the shareholder's name, certificate number and the number of shares. Keep the register with your bylaws, articles of incorporation and corporate minutes

Yes, after consulting an attorney regarding securities laws and obtaining Board of Director approval, stock can be issued at any time. If you issue new stock, the price of each share of stock does not have to be the same price as your initial shares - and should be higher if your company is more valuable, lower if your company has declined in value. However, there may be consequences if you issue stock to initial investors at a very low price and shortly thereafter you issue stock to another group for a much higher price.

Dividing the pie and dilution of shares: Owning stock is like having one piece of a pie. Ideally, when more shares are issued, the business is growing, i.e. the pie is getting larger- but each existing shareholder has a smaller percentage of the larger pie. That is called diluted shares. It is why the original owners of corporations that go public can have less than 1% of the shares, but that 1% is worth millions.

Sometimes shareholders purchase shares and want the agreement that their shares won't be diluted if more stock is issued. You can sign an agreement where they have a right (not the obligation) to purchase additional shares at the same price so that their percentage ownership remains the same. This is NOT in the sample agreement - so please see an attorney for the proper agreement.

The corporation can never benefit from any profit or loss on the transaction - it is strictly a private arrangement between the buyer and the seller.

Please read the information regarding buy-sell agreements. This agreement limits how the shares can be sold.