basic questions about starting a company

**paulw1283** · 06-05-2008 09:26 PM

I want to start a S corporation. I'm the only one in the company so far. I want to start the company with an inital capital of $5000.

When I was trying to fill out the Article of Incorporation for my state, there is a section that asks how much "authorized stocks" and "issued stocks" there are. Does "issued stocks" mean the stocks that my inital $5000 is worth? So if each stock is $5, then I just issued 1000 initial stocks to myself? Is that how that works? And is authorized stocks the maximum number of stocks that the company can ever issue? What do you recommend the authorized stocks to be?

So I should put 1000 as the initial stocks and then make it $5 per stock on the Article of Incorporation? Then I can just put $5000 in a business bank account and start doing my business?

These are basic questions but it's hard to find a clear answer. Any help would be greatly appreciated.

Thanks

**rogercbryan** · 06-05-2008 09:54 PM

Yes... you can do 1000 shares at $5... No... you will be able to issue more stock in the future if you need.

**paulw1283** · 06-05-2008 10:15 PM

Thanks. But do I have to issue stocks now? Since I'm the only one in the company now, can't I just open a business account with $5000 and not issue any stocks at all? (for now)

**rogercbryan** · 06-05-2008 10:18 PM

To form a S-Corp you will need to issue stock

**StealYourDreams** · 06-05-2008 11:29 PM

Originally Posted by paulw1283

I want to start a S corporation. I'm the only one in the company so far. I want to start the company with an inital capital of $5000.

When I was trying to fill out the Article of Incorporation for my state, there is a section that asks how much "authorized stocks" and "issued stocks" there are. Does "issued stocks" mean the stocks that my inital $5000 is worth?

Issued is how many you've issued to yourself and any other shareholder out of the pool of authorized stock.

The number of shares you issue to yourself in the beginning really doesnt mater considering you will have the ability to issue additional shares to yourself and have all of the voting power. Dont even bother attempting to tie your contributed capital to a percentage of ownership or put a value on the stock as in the example you've given.

All it will end up doing is creating a very convoluted valuation that has no bearing on reality.

Again, it is about control, not the number of shares issued.

And is authorized stocks the maximum number of stocks that the company can ever issue?

It's a good way to view aithorized. However, you can hold a meeting (with yourself) and elect to increase the number of authorized shares. You will need to record the resolution and amend your articles of incorporation with the secretary of state; for a fee of course. It becomes much more complicated when you have shareholders and need to send out proxy statements and vote on all such matters.

What do you recommend the authorized stocks to be?

This really depends on your growth and your intent to not only sell shares at a future date, but set up employee stock option plans.

The overall number doesnt really matter just the percentages of ownership. For smaller companies that are forming a corporation for liability purposes you will usually see 1,000,000. 10mm for a med sized company and 100mm+ if you plan on raising money, going public, etc.

So I should put 1000 as the initial stocks and then make it $5 per stock on the Article of Incorporation? Then I can just put $5000 in a business bank account and start doing my business?

These are basic questions but it's hard to find a clear answer. Any help would be greatly appreciated.

You'll do better by disassociating your initial contributed capital from the number of shares issued. If you want to make it easy on yourself:

Authorized: 1,000,000
Issued: 100,000
Par value $.01

I highly suggest using a service to file the articles for you and have them act as your initial agent of service/process, or whatever they call it in your state.

You will recieve a CD rom with most of the boilerplate forms you will need for minutes, bylaws, resolutions, etc. Additionally, you will recieve a book to keep everyting in, a cool corporate seal, and stock certificates.

Much more important than the number of issued and authorized shares is that you keep good records and not comingle your personal and business assets.

Good luck with your venture and feel free to ask if you have any additional questions.

EDIT: oh and Paul just so we're on the same page you dont really "form" an S-corp, you form a corporation and file this form http://www.irs.gov/pub/irs-pdf/f2553.pdf electing to be an S-corp

**BusinessAdviser** · 06-05-2008 11:38 PM

Can I ask why you settled on an S Corp rather than, say, an LLC?

**matt_15** · 06-07-2008 04:50 AM

yeah, you are much better starting an llc.

**JLeezer** · 06-07-2008 08:43 AM

Originally Posted by ADVERTISE HERE!

Can I ask why you settled on an S Corp rather than, say, an LLC?

Great question to ask.

Originally Posted by matt_15

yeah, you are much better starting an llc.

Much too general advice considering that you know nothing else about his situation. Once a lot of details are know, this might have been appropriate, but not at this point.

**paulw1283** · 06-07-2008 12:12 PM

stealyour dreams, thanks for the comprehensive answer.

advertisehere, you asked me why I'm starting a S corp rather than a LLC. Well, for one thing, starting a S corp is a lot cheaper in my state (IL): $175 VS $500 for a LLC. And I really couldn't find any real advantages of a LLC over a S corp for my sitution. I mean, the tax system are pretty similar, so I really don't see any LLC advantages. But then again, what do I know about business structures...? So I'm open to any comments and suggestions. Why do you think I should use the LLC format instead (if that's what you mean)?

Thanks

**nocci01** · 06-08-2008 02:31 PM

Depends...I posted a comment on another thread about S Corps vs LLCs. There are differences that can affect you in the long run and $325 shouldn't stop you from forming the correct entity or the one that is better for your situation. I recommend that you look into it a little more thoroughly before filing your entity or you may end up spending more to get it changed. Have you seeked advice of an attorney that specializes in corporate entities or have your read any good books about this topic? If you don't know the pros and cons of each type of entity, you may not be doing yourself and your business justice.

The liability for the S Corp and the LLC are different and the way you can get sued is different as well. One great source on this topic is Robert Kiyosaki's book: Own Your Own Corporation.