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How do I purchase shares within my Corporation?

Saginaw, MI |

I converted my LLC into a Corporation and I as sole Incorporator already elect myself as sole Director until the Shareholders First Annual Meeting is adjourned, but there's no shareholders. So I wanted to know how do my Corporation (I as sole Director) issue shares unto myself (I as sole Shareholder)? And can my Corporation (I as sole Director) issue a paper stock to myself (I as sole Shareholder)?
I have a Stock Purchase Agreement drawn up and I will record and place this in my Corporation Minute Book. Is there anything else I need to know before proceeding?

Attorney Answers 3

Posted

The corporation can issue shares to you in exchange for your membership interest in the LLC or the corporation can issue shares to the LLC in exchange for its net assets. Either way the transaction needs to be properly documented. I urge you to consult a business attorney.

You haven't identified the other parties involved in this question so I cannot determine whether I may have a conflict in this matter. Should it turn out that I have an attorney-client relationship with any of the other parties, my response to this question will not prevent me from continuing to represent an existing client.

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Asker

Posted

Mr. Smith, there's not a LLC involved. I was informing you I upgraded my LLC to a Corporation and wondering how do I issue the start-up shares to myself?

Brook McCray Smith

Brook McCray Smith

Posted

My answer assumed that there were assets in the original LLC. If you have not yet invested any money or assets into the business, the corporation can issue shares to you in exchange for money or assets contributed to the corporation. My admonition regarding the necessity of correct documentation remains.

Asker

Posted

Mr. Smith, thank you so much for understanding. So do I purchase the shares from my Corporation by signing a "Stock Purchase Agreement" with my Corporation and documenting it?

Brook McCray Smith

Brook McCray Smith

Posted

The term "Stock Purchase Agreement" does not have a universally agreed meaning. Drafting the documents necessary to achieve your goals is beyond the scope of my answer. As I said earlier, I urge you to hire a business attorney.

Asker

Posted

Mr. Smith, thank you I will hire a business attorney to achieve my goal.

Posted

The other issue is the number of shares that are authorized and the number of shares that are ISSUED. You can authorize 60k shares for the minimum corporate filing fee. Any more than that requires paying an additional fee. If you will always be the sole shareholder, it does not really matter how many shares you issue. If you *might* sell some or all of your interest in the corporation, at some point, you may want to hold back a certain number of shares for that purpose.

In other words, you could issue 10k of your 60k authorized shares to yourself, and keep the remaining 50k shares available for later issue.

James Frederick

***Please be sure to mark if you find the answer "helpful" or a "best" answer. Thank you! I hope this helps. ***************************************** LEGAL DISCLAIMER I am licensed to practice law in the State of Michigan and have offices in Wayne and Ingham Counties. My practice is focused in the areas of estate planning and probate administration. I am ethically required to state that the above answer does not create an attorney/client relationship. These responses should be considered general legal education and are intended to provide general information about the question asked. Frequently, the question does not include important facts that, if known, could significantly change the answer. Information provided on this site should not be used as a substitute for competent legal advice from a licensed attorney that practices in your state. The law changes frequently and varies from state to state. If I refer to your state's laws, you should not rely on what I say; I just did a quick Internet search and found something that looked relevant that I hoped you would find helpful. You should verify and confirm any information provided with an attorney licensed in your state. I hope you our answer helpful!

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Posted

Mr. Frederick, my Corporation has 60K authorized shares, and I will be issuing 31K shares of my Corporation to myself. But how do I issue the 31K shares to myself? and can I issue a "paper" stock to myself with a "corporate seal" stamped on it?

James P. Frederick

James P. Frederick

Posted

You mentioned that you have a corporate minute book. Most such books come with stock certificates included. If they did not, you can purchase them from companies like the one I suggested. How the stock is issued is in part an estate planning issue. You may want it to be held by your trust (Or have your trust as the designated beneficiary of the stock). It CAN be as simple as having you as the owner, however. The corporate seal or the design on the stock is less important than the existence of the certificates.

Asker

Posted

Mr. Fredrick, yes I brought a Corporation Kit from LegalZoom, which comes with Stock Certificates, Corporate Seal, Minute Documents and etc.

Posted

It is not only allowed but it is mandatory that the Corporation issue shares to you in return for whatever your formation capital was (if there was any besides your LLC membership), both for tax purposes and for formation purposes. Since ownership in a corporation is reflected solely by ownership of shares. The number of shares authorized (which must be stated in the formation documents) should be high enough to comfortably accommodate any future shareholders you wish to bring on board. The number of shares issued to you should reflect consideration of 1) the par values your state incorporation laws require (number of shares times the per share price); 2) the amount of control you wish to retain when you bring on other shareholders (ie, if you authorized 100,000 shares and issue 50,001 to yourself you will ensure that you will always have control). The number of shares is something many attorneys consider to be arbitrary and not worth a lot of thought. Also, some states may have more stringent requirements for the number of shares issued by a corporation, since incorporations are a product of state law.

As a last note, a Delaware corporation will pay higher fees for higher par values, but Delaware will allow a new corporation to set share prices arbitrarily low to maintain a lower par value.

This is intended only as a general commentary on the question asked, it is in no way intended as legal advice relating to your particular situation and does not form any relationship between the questioner and myself.

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