Corporate Law When to issue shares after opening a corporation?

[DKoltan]

Jurisdiction

Delaware

Hello. When should I issue shares after starting a corporation? Could the co-founders be out of stock for a while? How to issue shares if the founders have signed a vesting, or are they issued only when it is necessary to attract an investor or an employee? How then does the vote of shareholders for the choice of the board of directors take place?

 

[Tax Counsel]

Hello. When should I issue shares after starting a corporation? Could the co-founders be out of stock for a while? How to issue shares if the founders have signed a vesting, or are they issued only when it is necessary to attract an investor or an employee? How then does the vote of shareholders for the choice of the board of directors take place?

You need to see a corporate law attorney about this. The corporate shares need to be issued at least before starting business so that the shareholders can elect the board that will run the corporation. Without a board, the business can't hire the officers/employees it needs to operate and thus can't get started.

 

[flyingron]

TC is right (of course). The lawyer that handles the incorporation typically can handle the initial issuance and guide the principals through the initial shareholders/board elections. I still remember sitting down the day after our corporation was created as one of the (then) only two shareholders, electing our board of director (our state only requires one, and the other owner had 95% of the shares) which was him. I was tasked with possession of the corporate seal (which amusingly I don't think it came out of it's case until the company was sold years later).

 

[DKoltan]

You need to see a corporate law attorney about this. The corporate shares need to be issued at least before starting business so that the shareholders can elect the board that will run the corporation. Without a board, the business can't hire the officers/employees it needs to operate and thus can't get started.

TC is right (of course). The lawyer that handles the incorporation typically can handle the initial issuance and guide the principals through the initial shareholders/board elections. I still remember sitting down the day after our corporation was created as one of the (then) only two shareholders, electing our board of director (our state only requires one, and the other owner had 95% of the shares) which was him. I was tasked with possession of the corporate seal (which amusingly I don't think it came out of it's case until the company was sold years later).

Thank you! We will have a type C corporation, because we are not US citizens. Does this affect the issuance of shares in any way? And what if we sign documents for vesting, and there, in the first year, the founders are not entitled to any shares, they need to be issued and they will lie, or how does it work? And is it possible to issue non-100% shares, or is 100% always issued and then they are simply washed away?

 

[Tax Counsel]

Thank you! We will have a type C corporation, because we are not US citizens. Does this affect the issuance of shares in any way?

No. It does however make a huge difference in the tax treatment of the income the corporation earns, especially if you do not qualify as residents for federal tax purposes. You should see a U.S. tax attorney familiar with the taxation of nonresident aliens who own property in the U.S. as there are special rules that apply in that situation.

And what if we sign documents for vesting, and there, in the first year, the founders are not entitled to any shares, they need to be issued and they will lie, or how does it work?

You need to see a corporate law attorney for assistance here. Having all the stock subject to vesting is a problem because until some of that stock vests you have no owners of the corporation that can vote to elect the board, etc. There are ways to deal with that. For example the corporation could issue two classes of stock, one with little value but that allows for voting rights for the board and other powers needed to get the company going and a second class of stock that will have most of the value. You need to talk that over with corporate counsel to decide how best to deal with that, and ensure your choice won't create tax problems for you.

 

[Zigner]

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