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Understanding Your Company's Stock

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

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(Want more general incorporation information? Please visit our Incorporating 101 page.)

 

Who Needs Stock?

 

There are four types of Delaware corporations: general corporations, close corporations, non-stock corporations and S-corporations. There is also the Delaware limited liability company (LLC). 

 

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.
  • Delaware LLCs are member-owned and do not require any type of stock to evidence ownership. Although it is a subtle difference, it is important to point out that LLCs are not corporations.

 

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.

 

When Do I Issue Stock?

 

When and how you choose to issue 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.

 

Where Do I Get Stock Certificates and Other Supplies for My Company?

 

Our Standard and Premium incorporation packages contain 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.

 

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 qualify as a minimum stock corporation 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.

 

For more information about stock types, share amounts or Franchise Taxes, please feel free to give us a call at 1-800-345-CORP or email us at info@delawareinc.com.

 

Ready to form a Delaware corporation? Simply click the button below.

 

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