If you’re starting a business, you’ll need to consider your company’s share structure. This refers to how many shares of stock your company will have and what class they will be. Share structure can affect your company’s voting rights, dividends, and other aspects of ownership. In this blog, we’ll discuss the basics of share structure, including the different classes of stock and the importance of par value.

What is Share Structure?

Share structure refers to the types and amounts of stock that a company can issue. When a company is formed, it can choose how many shares of stock to authorize, and what class or classes those shares will be. The share structure will be included in the company’s articles of incorporation, which is filed with the state where the company is incorporated.

Most companies have only one class of stock, but some companies may have multiple classes. For example, Google has two classes of stock: Class A and Class C. Class A shares have one vote per share, while Class C shares have no voting rights. This allows the founders and other insiders to retain voting control of the company, even as it goes public.

Different Classes of Stock

There are several different classes of stock, each with its own rights and privileges. The most common classes are:

• Common Stock: Common stock is the most basic form of stock, and it represents ownership in the company. Holders of common stock are entitled to vote on corporate matters and receive dividends, if the company chooses to pay them. Common stock is the most common type of stock and is typically the only type of stock issued by most companies.
• Preferred Stock: Preferred stock is a type of stock that has preferential treatment over common stock. Holders of preferred stock typically receive a fixed dividend, which must be paid before any dividends are paid to holders of common stock. Preferred stockholders also have priority over common stockholders in the event of liquidation, meaning they are more likely to receive their money back if the company goes bankrupt. Preferred stockholders usually do not have voting rights.
• Restricted Stock: Restricted stock is a type of stock that is granted to employees as part of their compensation. The stock is “restricted” because it is subject to certain restrictions, such as a vesting schedule or a requirement to meet certain performance goals. Once the restrictions are lifted, the employee can sell or transfer the stock.
• Convertible Stock: Convertible stock is a type of stock that can be converted into another type of security, such as common stock, at a predetermined price or ratio. This allows investors to convert their preferred stock into common stock if the company performs well and the value of the common stock increases.
• Warrants: A warrant is a type of security that gives the holder the right to purchase stock at a fixed price for a certain period of time. Warrants are often issued as part of a financing round to sweeten the deal for investors.

Some companies may also issue different classes of common stock, such as Class A, Class B, and so on. Each class may have different voting rights or other privileges.

Importance of Par Value

Par value is the nominal or face value of a share of stock. It is typically set at a low amount, such as $0.01 per share. Par value is not the same as market value, which is the price at which the stock is currently trading.

Par value is important because it affects how much a company can sell its stock for. For example, if a company sets its par value at $1 per share and issues 1,000 shares, it has raised $1,000 in capital. If the company sets its par value at $0.01 per share and issues the same 1,000 shares, it has raised only $10 in capital. This is because the par value represents the minimum price at which the stock can be sold.

However, par value is largely a technicality and does not affect the actual value of the stock. In fact, many companies set their par value at a very low amount, or even zero, to avoid having to pay unnecessary taxes or fees.

How to Determine Your Share Structure

When determining your company’s share structure, there are several factors to consider. Here are some key considerations:

• Voting control: How much voting control do you want to retain as the company’s founders? If you want to maintain control, you may want to issue multiple classes of stock with different voting rights.
• Funding needs: How much capital do you need to raise? Issuing more shares of stock can help you raise more money, but it may dilute the ownership of existing shareholders.
• Investor preferences: What type of investors do you want to attract? Some investors may prefer preferred stock with fixed dividends, while others may prefer common stock with voting rights.
• Legal requirements: What are the legal requirements for share structure in your state? You may need to consult with an attorney or accountant to ensure that you are in compliance with state laws and regulations.

Once you have determined your share structure, you will need to include it in your articles of incorporation and file it with the state where your company is incorporated.

Key Takeaways

• Share structure refers to the types and amounts of stock that a company can issue.
• Most companies have only one class of stock, but some companies may have multiple classes with different voting rights or other privileges.
• The most common classes of stock are common stock and preferred stock, but there are other types such as restricted stock and warrants.
• Par value is the nominal or face value of a share of stock and represents the minimum price at which the stock can be sold.
• When determining your share structure, consider factors such as voting control, funding needs, investor preferences, and legal requirements.

If you’re starting a business and need help with incorporating and filing your articles of incorporation, Mark’s Corpex can help. Our simplified filings process includes a question and answer form to make the process easy and straightforward. We also offer registered agent services and high-quality corporate kits and supplies to help you get your business up and running. And, whether you have one class of stock or multiple classes, we can print your company’s stock certificates for you. Visit our website at www.markscorpex.com to learn more and get started.