Most
investors are very savvy in the knowledge of stock certificates, bonds and such.
However in this failing economy, fraught with uncertainty about employment, the
financial system and the world economy in general there are new markets quickly
emerging.
The primary of these being the unemployed "blue collar" worker who spent most of their lives working for a company that now with just the stroke of pen, terminates their dreams that they have worked so hard and long for. So much for loyalty.
Another market is that of the divorced parent who is trying to make ends meet now, on just their single income, as they now have no joint bank account, no joint savings, no joint dreams, only themselves and what they can provide for themselves and their children.
The final market are individuals that are of the "baby boomers age" who spent years going to college to become an engineer, a programmer, a systems analyst or even a consultant. These people were promised the "big bucks" for the rest of their careers. That of course is not the case now. In fact many of these "techno geeks" are now currently out of work, some for as long as one year. The others are being forced to work at fast food establishments, just to make ends meet. A very long way from the days of $120,000 dollar salaries, new cars, cruises and executive perks.
It is these markets that are searching desperately for a place to secure some sort of future for themselves. Many have turned to home based employment, which sometimes works and sometimes doesn't. A gamble to be sure. For others the stock market has offered some appeal, but as we have all seen the markets rise and fall like the wavs on the ocean, that too seems to be a volatile choice.
We here at MWAM. have the alternative to these gambles. We are in the process of building a city from an old ghost town. In order to build this city, we will require entrepreneurs who have the vision to see beyond the dust and realize the potential to become completely self sufficient and self financed. We will also need investors who are seeking long term benefits for their hard earned monies.
In doing our part to accommodate that vision we are building a 10 acre recreational facility which will include a recreational vehicle area, campsites, an ATV racing track, an outdoor concert arena and a one acre sand bottom lake with a beach for the sunbathers. The project is over 50% completed from our own funds and has already began to market itself to the general populace in a 100 sq mile radius.
The management of the park has a combined total of over 75 years experience in the entertainment field. From Kansas City to Des Moines, From St. Joseph to Hannibal, the response has been very encouraging and many have expressed their desire to be part of this long awaited concept for this area.
We here at MWAM. now make just such an opportunity available to those who are interested. These investors can NOW buy common stock in several different projects, at very low introductory rates in a very solid company that definitely has a vision and the means to make it happen. MWAM. is Dunn & Bradstreet rated.
This introductory rate stock is practically GUARANTEED to increase in value from this introductory issued value in the coming years.
Feel Free to contact me at your leisure should you have any questions, concerns about these business's at any time at the number listed above, or the email addresses.
Before you issue stock, let’s discuss the difference between authorized shares of stock and issued shares of stock. “Authorized shares” is the number of shares set by the articles of incorporation that the board of directors is “authorized” to issue. The board of directors is the body that controls the issuance of stock. In large corporations, this authorized limit on the total number of shares prevents the board from issuing too many shares. Too many new shares lower the value of your stock.
The board may issue all the shares now, or issue some now, and some later. Your articles of incorporation state the number of shares that the corporation is authorized to issue and make this number a matter of public record for all to see. The number of authorized shares equals the total number of shares that may be issued now, or at some point in the future. Issued shares is the number of shares “issued” or distributed to shareholders. Only issued shares count for ownership purposes.
Shares that are not issued are called authorized but unissued shares. They are technically worthless until they are issued to a shareholder. Usually when a corporation issues shares of stock to its initial shareholders, a few shares are left unissued so that they may be issued later to new investors, family members etc.
It is a good idea not to issue (distribute) all of the authorized shares now, because the owner may need a few shares to issue later. They may want to issue some stock to a son or daughter entering the business, or to a new business partner. The main point to remember here is that only issued shares count for ownership. Unissued shares are held in reserve for future needs and do not count for ownership.
Take the following example for a corporation that has 1,000 authorized (another word for total available) shares of stock, and two owners:
Owner A is issued 100 shares 100/200=50% ownership
(Number owned divided by total issued.)Owner B is issued 100 shares 100/200=50% ownership
(Number owned divided by total issued.)
The two shareholders in this example own 50% of the corporation because the 800 unissued shares are not considered in the calculation. One thousand authorized shares less 200 issued shares leaves 800 available for future use. Since only the 200 issued shares count for ownership, owners with 100 shares each own one half of the corporation. (One hundred is half of two hundred.) Only issued shares count for ownership percentages.
Stock in a corporation represents various rights and privileges to the shareholder. So, in exchange for the stock of a corporation something of value must be given. The payment given to a corporation for its stock is known as consideration. State law governs the type of consideration you give for your stock. You can pay money, give property, or have already provided labor or services to the corporation for which you were not paid.
Some states have a minimum capital requirement, that is, a minimum amount of money is required to be in the company’s bank account before operations can begin. If there is no minimum capital requirement in your state, any amount of consideration approved by the Board of Directors is acceptable. This amount can be all cash, all property, all services, or various combinations of the three. (Since giving property that has appreciated in value since you acquired it can cause tax problems, you should see your CPA before doing so.)
Please note that money given to the corporation doesn’t “disappear.” In reality, the corporation will spend this much money just opening its doors and you would have put money into the corporation anyway. The corporation will spend this amount reimbursing you for filing fees, taxes, buying office supplies, printing stationery, paying rent and so forth.
If your initial cash contribution isn’t enough to get the corporation up and running, you’ll have to put more money into the corporation from time to time. If you have to put money into the corporation, you can account for the contribution in three ways:
1. You can put money into the corporation in return for additional stock. This is usually done when other partners are involved.
2. You can put money into the corporation, issue no more stock and simply call this an owner’s contribution. This is usually done when there is only one shareholder. This money is not taxed when taken back out of the corporation. It’s a return of capital.
3. You can put money into the corporation, call it a loan, and receive the money back with interest. Discuss this with your CPA first. This is the preferred method. The best way to do it is to set up an account on your books called something like “Payable to Shareholder” and whenever you lend money to the company, account for it with this account.
Giving property for your stock – If you give real estate, vehicles, equipment or other big dollar items to the corporation in exchange for your stock, you’ll need to make up a list of the assets and also transfer title of the property to the corporation. Transfer land to the corporation with a deed, perhaps with the help of a title company. Transfer vehicles to the corporation by signing the title over to the corporation, then have the corporation register the vehicle at the county courthouse. Transfer equipment by giving a bill of sale to the corporation.
If you owe money on the asset, you can’t transfer title since the lender has rights to it. If you want your corporation to use and make payments on a car for example, keep everything the way it is and simply lease the car to the corporation. Have the corporation pay you enough each month to make the payment. Also, make the corporation pay for gas and repairs. You’ll need to draw up a lease that outlines the details. Be sure to have the vehicle insured in the corporate name in case you’re in an accident. You should chat with your accountant and insurance agent about this.
Many people retain ownership to their property and simply rent or lease it to the corporation. This way, they can receive lease payments from the corporation for its use, making it lease or rental income. This is a good way to get money out of the company without paying Social Security taxes. (Rental income is only subject to regular income taxes.)
One word of caution here, be careful when leasing vehicles or dangerous equipment to the company. If someone gets injured by the vehicle or equipment, the injured party may try to recover from you as the lessor of the equipment.
Tax considerations – Sometimes, giving property or services for your corporation's stock leads to tax problems, and you should see your CPA accordingly. If you simply give property to your new corporation in exchange for at least 80% of the stock, you usually don't have to worry about taxes. Internal Revenue Code Section 351 calls this a tax-free exchange and allows it.
However, exchanging property in the following cases will lead to problems. If you want to exchange property for stock in a manner similar to any of these examples, or are transferring property to the corporation to avoid taxes, see your CPA or tax advisor first. A list of property transfers to avoid:
1. An exchange of property to a corporation when you will own less than eighty percent of the stock.
2. An exchange where you receive cash, or property, or benefits other than stock for your property.
3. An exchange where your liabilities against the property exceed your adjusted basis in that property.
4. An exchange of property that has increased in value since you bought it.
A business corporation cannot exist without stockholders. Stockholders, or shareholders as they are often called, invest money in a corporation in exchange for a part or “share” of the corporation. In return for their investment, shareholders receive dividends based on the future earnings of the corporation or some other monetary compensation. In many cases, shareholders invest in a corporation hoping that its value will increase enabling them to sell their stock at a profit later. Shareholders who buy stock in a corporation for its profit potential are known as investors. Small business owners who are not investors usually work for the corporation and receive a salary in addition to or instead of dividends.
There are basically two ways to buy stock in a corporation—either directly from the corporation, or in the open market. Initially, all stocks are purchased directly from the corporation that issued them. However, many shares are bought by investors who will sell them at some point in the future. This is how shares become available in the open market, investors selling them to other investors. There is such a demand for these shares as investments, large organizations that facilitate stock trading, like the New York Stock Exchange, were created to facilitate the purchase and sell of these secondhand securities.
Unlike the investor who buys for speculation, business owners are buying stock in their corporation in order to start a company. Like most small business owners, they’ll probably hold on to the stock and someday leave it to their kids. But, like the investor, they still have to “purchase” the stock from the corporation and give something of value for it. The new business owner must "bargain" with the board of directors to determine a price acceptable to both the shareholder and the board.
Usually the situation is a little different because the small business owner will play both the role of the prospective shareholder wanting to buy stock, and the director wanting to receive something of acceptable value for it. In reality, however, prospective shareholders will give what they can afford for the stock and of course “the board” will accept the offer.
In this case, issuing stock boils down to answering these three questions:
1. Who will the shareholders be?
2. What percentage or part of the corporation will each person own?
3. How much will the shareholders pay for each share of stock?
Once you know the answers to these questions, issuing the stock is simply a matter of completing the last section of the form entitled “Minutes of the Organizational Meeting of the Board of Directors” and issuing stock certificates (appendix) to each new shareholder. Be sure to read the remainder of this section before issuing the stock. Also, remember the price per share of all initially issued shares must be the same.
Issuing stock in a corporation with more than one owner can sometimes be tricky, especially if the percentage of ownership or consideration is unequal. Let’s take a minute here to talk about the different combinations and possible solutions. (Consideration is the money or property given for stock.) For the purposes of these examples, let’s say that there are three owners (shareholders) in the corporation and 100,000 authorized shares of stock.
Remember from the previous section, it’s a good idea not to issue all of your authorized shares so we won’t in these examples. Too often, small business owners get caught up in the stock’s price per share upon issue. Don’t worry about the price per share. It doesn’t matter. Instead, concentrate on what percent of the corporation each shareholder will own after the shares are issued. The price per share will simply be a function of how much of the corporation the shareholder owns and the amount the shareholder gives for the stock. Price per share will be equal to the amount the shareholder gives for the stock divided by the number of shares they get.
Equal ownership / Equal consideration – This is an easy one. All three shareholders put in an equal amount of cash (the amount doesn’t matter) and will divide ownership evenly, one third each. To make the math easy, let’s issue each owner 10,000 shares of stock, leaving 70,000 shares unissued. A total of 30,000 shares (10,000 + 10,000 + 10,000) of stock will be issued.
Let’s check our math, 30,000 total issued shares, divided by 10,000 shares issued to each owner equals .333 or 1/3 ownership each. Each shareholder will invest an equal amount of money (or services rendered) depending on how much money the corporation needs to start operations. To show their ownership, we’ll issue one stock certificate to each shareholder for 10,000 shares.
Equal ownership/ Unequal consideration – This is a typical example. People of different financial means often start a business together. Some owners put in money, and some put in effort. This situation occurs when a certain amount of money is needed to start the business, and only one person can contribute it. For this example, let’s say that $10,000 is needed to start the business.
The best way to handle this is to have all three shareholders contribute the same amount of money for their stock, and the additional amount is given as a loan by the shareholders that have the cash needed. Two of the shareholders will put in what they can, say $500 each. The third shareholder puts in $500 too.
Now the business has $1,500 of the $10,000 it needs. The additional $8,500 needed will be loaned to the corporation by the third shareholder. The officers of the corporation will sign a promissory note guaranteeing payment of the $8,500 to the third shareholder.
Again, let’s issue each owner 10,000 shares of stock, leaving 70,000 shares unissued. A total of 30,000 shares (10,000 + 10,000 + 10,000) of stock will be issued. Let’s check our math, 30,000 total issued divided by 10,000 shares to each owner equals .333 or 1/3 ownership each. To show their ownership, we’ll issue one stock certificate to each shareholder for 10,000 shares.
Unequal ownership/ Unequal consideration – In this example there are three shareholders. Shareholder 1 will own 10 percent of the corporation, shareholder 2 will own 20 percent and shareholder 3 will own the remaining 70 percent. All we do here is simply issue the needed number of shares to each person, and adjust the consideration to match. For example, lets issue 10,000 of our 100,000 shares to make the numbers easy to work with.
We will give the first shareholder 1,000 shares, the second shareholder 2,000 shares, and the third shareholder 7,000 shares for a total of 10,000 shares issued. (1,000 is 10% of 10,000 and 2,000 is 20% of 10,000 and 7,000 is 70% of 10,000) For consideration, the shareholders contribute $1,000, $2,000 and $7,000 respectively.
If the shareholders don’t have that much money, they could contribute $100, $200, and $700 respectively. Still too much? Then let them contribute $10, $20, and $70 respectively. The amount of the consideration doesn’t matter as long as it makes the ownership percentages what we need them to be.
Unequal ownership/ Equal consideration – This should never happen because it would result in the shareholders paying different amounts of money per share of stock. All stock initially issued (and at the same time) should be issued for the same dollar amount per share. Issuing stock at various dollar amounts per share results in what is known as "watered down" stock and can give rise to stock fraud and other legal problems.
Although stock certificates are not money and this is only an analogy, you may compare stock certificates to checks in a checkbook and authorized shares to the amount of money in your checking account. Stock certificates and checks are similar, but of course are not the same.
Instead of representing money like checks do, stock certificates represent shares of ownership in a corporation. When you write a check, you give someone money. When you issue certificates, you give someone ownership in a corporation. With a checkbook, you can write checks in any dollar amount to as many people as you want until you either run out of money, or out of checks. With stock, you can issue certificates for any number of shares to as many people as you want until you either run out of authorized shares or certificates.
To issue stock certificates to each shareholder, you must complete the face of the certificate by typing the name of the corporation, the name of the shareholder, the date, the state of incorporation, the number of authorized shares, the par value, and the number of shares being issued to the shareholder all in their appropriate spaces.
Next, number the certificates sequentially, (01, 02, 03, 04, 05…) and have the President and Secretary of the corporation sign the certificates at the bottom left and right. The circle near the bottom is where you will press the corporation’s seal.
On the back of the certificate, do not complete the section that begins with “For value received.” This section is completed when, and if you ever sell your stock. Completing this section is like endorsing a check, and makes the certificate transferable.