Steps To Consider Before Your Startup Issues Stock

stocksIt’s inevitable that start ups will think of issuing stock at one point or another. However, there are some things they need to research and make sure they complete, before they can take the next steps towards stock sales. First and foremost, startups need to seek the approval of the Board of Directors in order to take any steps regarding stocks. In order to achieve the official approval of the Board of Directors, startup executives need to suggest the resolution in a board meeting, or request written consent from the Board of Directors. The board will also have to approve the agreements, in terms of any sales of stocks, and if the startup needs to file any relative government documents, the Board is also in charge of approving these.

The second, but also a very important step a startup needs to take is to seek the approval of the actual shareholders. Usually, a majority needs to vote in favor of the approval of stock share issuance in any agreement. The startup will be responsible for reviewing the Articles of Incorporation or the Certificate of Incorporation of their company. This is mainly to ensure that they actually do have the approval and enough shares, to continue with a new sale of shares. Legally, they will also be responsible for complying with Security laws. While this is considered one of the later steps, is very important to ensure that you’ve been in compliance of the security laws before you actually offer the sale of stocks to anyone else.

 

secDocumentation is everything, always keep a written consent of the Board of Directors’ approval of the sale of stock, as well as a written consent of the shareholders approval. Documents that should also be kept in that same category are the agreement contracts.  Important documents to also keep track of, are the stock certificates. This needs to be provided every time a sale of stock takes effect. Keep in mind, that the following must be completed correctly for each of the stock certificates:

  • This certificate must be dated
  • Number pages for the certificates and the socks
  • *Do not forget to request the signature of an approved executive of the corporation on the stock certificates
  • Keep a copy of every single stock certificate

Make sure that the company’s stock ledger reflects accurately with the issuance of any new stocks. Finally, it is expected that a startup, corporation or enterprise file the appropriate forms with the Securities Exchange Commission, commonly referred to as the SEC, and any other forms required by the state, within 15 days of each sale.

ORIGINAL ARTICLE ON MY COLUMN ON RIGHTSTARTUPS HERE

© C. J. Leger November 23, 2014

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