Understanding Delaware Company Stocks

Find out why you need company stock, how much you should have, when to issue it, the differences between preferred stock and common stock, and where you can get stock certificates and other related supplies for your company.

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What are shares of stock?

Shares of stock are units of equity ownership in a corporation. Company stock are first authorized by the company’s Certificate of Incorporation (or later amendments) that state the number of shares the company has in total.

"Authorized" means the total number of shares of stock the corporation chooses to own or sell. If a majority of directors and stockholders approve, the number of shares can be raised and the corporation may sell them to raise capital as often as it needs to.

The term "issued shares" refers to the number of authorized shares that have actually been issued to individuals or corporate owners of the company including founders, managers, insiders and investors.

Stock in private companies is valued differently than stock in public companies.

Who needs stock?

There are five types of Delaware corporations: general corporations, close corporations, non-stock corporations, public benefit corporations and S corporations.

Here is a quick overview of their stock requirements:

• According to Delaware law, every corporation, unless designated a non-stock corporation, is a for-profit general corporation and, as such, must have at least one class of common stock to evidence ownership.
• Non-stock corporations (usually, but not limited to, not-for-profit organizations) do not have owners represented by shares of stock and, accordingly, surrender the ability to own stock.
• S corporations, which are small corporations where all net income and loss is divided and reported on the individual tax returns of shareholders rather than one federal tax return, can only have one class of stock.

Can an LLC issue stock?

A Limited Liability Company cannot issue stock of any kind. Delaware LLCs are member-owned or manager owned and do not have any type of stock to show evidence of ownership. Ownership in an LLC is shown via percentages.

What is no-par stock?

No-par stock is stock that is essentially issued without a face value. It can be issued to shareholders without the exchange of funds, goods or services.

Having no par value will not restrict the selling of your shares to investors at the price determined by the Board of Directors and accepted by the investor (just like shares that do have a par value).

It should be noted that some U.S. states do not allow corporations to issue no-par stock.

Fortunately, Delaware is not one of those states. The Delaware Division of Corporations allows Delaware general corporations to hold up to to 1,500 shares of no-par stock fee-free.

Learn more about Delaware no-par stock and par value.

What are the different types of stocks?

There are many different types of stocks for a corporation. The two most commonly used are Common Stock and Preferred Stock. Common stockholders are permitted to one vote, whereas Preferred stockholders often have no voting rights. Read more about the difference between common stock and preferred stock on our website.

How are stock prices determined?

Company stock prices can fluctuate based on the success of the company and the market as a whole. Internally, your company's financial health and growth potential significantly impact its stock price. A company with strong earnings and consistent profits are generally more attractive to investors, leading to a higher stock price. Positive news and events for a company, such as new product launches or successful acquisitions, can also lead to a higher market stock price. Other factors out of your control, such as inflation, supply and demand, and overall market conditions can also dictate the strength of your company's stock.

 When do I issue stock?

When and how you choose to begin issuing stock to your investors is entirely up to you. Obviously, you will want to issue yourself common stock early in the organization process to help prove your ownership and interest in the company.

If you have other initial investors, they will also expect to receive common stock early in the formation of the corporation. As you attract more investors, you can continue to issue common stock as your circumstances require.

When you find you are issuing common stock to investors more liberally, it might be a good time to consider issuing preferred stock to yourself and your senior investors in order to preserve exclusive rights and special powers.

When to sell stock?

One of the main reasons for a company to sell stock is to raise capital to bring in investors. Another reason to sell stock is to transfer shares of ownership to another individual or group.

Going public and selling stock can also enhance a company's visibility, credibility, and reputation. 

Where do I get stock certificates and other supplies for my company?

Our Standard Incorporation Package contains a company kit that includes 10 stock certificates for your company.

If you need additional stock certificates, please call us at 1-800-345-CORP or email us.

Can a business invest in stock?

How much stock do I need?

Since the annual Delaware Franchise Tax fees for stock corporations are based on the number of stock shares and their par value, it is best to keep both of these as low as you can.

If your stock corporation has 5,000 authorized shares or less, you are considered a minimum stock corporation and are only required to pay a minimum annual Franchise Tax of $175, in addition to an annual report filing fee of $50.

If your stock corporation has a total of 5,001 authorized shares or more, you are required to file an annual report (a $50 fee), and you must also pay an annual Franchise Tax on the total number of authorized shares your company owns. (Learn more about Delaware Franchise Tax fees.)

While you can have up to 5,000 authorized shares and still be considered a minimum stock corporation, many attorneys recommend you begin with 1,500 shares of no-par stock because placing a small par value on your stock can save you from a significant tax bite. There are also additional filing fees associated with filing more than 1,500 no-par shares.

If you choose to issue par-value stock, in order to avoid additional formation fees, your total equity valuation (the number of shares multiplied by par value) must not exceed $75,000 in order to stay within the minimum initial filing fee.

Accordingly, all of the share configurations below are allowed within the minimum initial tax:

• 15,000 shares @ $5.00 each (par value) = $75,000
• 150,000 shares @ $0.50 each (par value) = $75,000
• 1,500,000 shares @ $0.05 each (par value) = $75,000
• 15,000,000 shares @ $0.005 each (par value) = $75,000

Be sure to include all classes of stock, including common and preferred stock, when utilizing the above formula.

 What are stock dividends?

After a successful quarter, a corproation may distribute stock dividends to its shareholders. Stock Dividends are a portion of a company's profits that are given to shareholders rather than being reinvested in the company. Stock dividends come in the form of additional stock, meaning that the process can have an impact on the stock price. Typically the stock price will drop because the company is essentially paying out some of its cash to shareholders.

Regular divdend payments can indicate a company's financial health and confidence in its future performance. For investors seeking regular income, companies with a history of paying consistent dividends can be attractive.

For more information about how to issue shares of stock in a Delaware corporation, please feel free to give us a call at 1-800-345-CORP or email us at info@delawareinc.com.

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