US Corporate Shares

How the distribution of shares in a corporation occurs depends upon whether or not you have other people investing in your corporation. If you're the only investor things are simplified a great deal. Let's suppose you start a business and form a corporation. When you incorporate, you typically purchase a set of corporate records which includes stock certificates and a stock transfer ledger (a share register). Further, when you incorporated, your corporation was 'authorized' to 'issue' a given number of shares.

Because you are the only founder and investor, you typically put some money into the corporation and take some shares in exchange, i.e. issue some corporate shares to yourself. How much you pay for a share is pretty arbitrary. So is the number of shares you receive.

Suppose, for example, that you plan to keep your corporation small. You might only authorize 100 shares which means that you can only issue 100 shares without making some formal modifications to your corporate charter.

Some business experts recommend 'authorizing' far more shares than you need to allow for growth and flexibility. However, if you know you'll be keeping your company small, you probably don't need a huge number of shares. Just because you've authorized a given number of shares doesn't mean that you must issue that number of shares. A person's percentage ownership of a company is determined by the percentage of total issued shares that a person holds. So, let's assume you need $5,000 to start your company. You might issue yourself five shares of corporate stock at $1,000 each.

To do so, you'd look at your stock transfer ledger and it's pretty self-explanatory. There is a column listing the name of the shareholder, the date shares are issued or a transfer of ownership is made, the amount paid, and from whom the shares were transferred (which would be listed as an 'original issue' if the shares are coming from the corporation).

You pay the money into the corporate account, typically with a personal check. Then you mark down the information in the share register. Next, you actually issue the shares. This means that you take a certificate of stock which typically reads something like "This certifies that ____ is the owner of ____ fully paid and non-assessable shares in the ___ corporation." And you fill in the blanks with the appropriate information. Then, typically, a corporate officer signs the certificate and it is stamped with the corporate seal.

You now are the owner of five shares of stock and are 100% owner of your corporation. Because the company needed money and you were the only source of financing, it was easy--you exchange cash for stock.

Cash is the universally accepted way of purchasing stock in a corporation and it is considered an acceptable means of getting ownership in a corporation in every state. The nice thing about cash-for-stock deals is that the actual amount paid for the stock is clear.