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I formed a corporation in the middle of last year but have not issued shares, per se. When must shares be issued by?

Orangevale, CA |

Thanks!

Attorney Answers 4


  1. Great question! Seems simple but the single most common error I see when reviewing corporation books is the failure to issue securities (shares or LLC membership interests) ever!

    They should be issued as soon as possible to finalize the formation of your corporation. They should be paid for and a copy of the payment (.e.g. check) should be kept in the permanent records (Minute Book). They should be issue pursuant to a permit or an exemption from having to obtain a permit. If they are sold to someone out of state you have Federal regulation to add to state regulation. The solutions may not be difficult depending on the facts.

    The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.


  2. Michael makes a good point. Without issuing shares, the corporation is not fully funded. Each share represents a percentage of ownership. So the contribution of each shareholder-owner is not fully accounted for until the share certificate is signed and issued to the investor-owner. Follow your Corporate ByLaws and have the President and Corporate Secretary take care of this right away. You may want to meet with a Business Law attorney in California (see Avvo.Com under Find-A-Lawyer) and get some professional guidance. Good Luck!


  3. Shares should have been issued at the formation of the corporation. The shares indicate ownership just like the title to a car or deed to real property. Consequently, the shares should be issued as soon as possible.

    As an aside, now that you have established a corporation, presumably to protect your personal assets it's essential that you act as a corporation so that the corporate shield is not pierced.

    No legal representation exists by virtue of this answer. It is recommended that you contact an attorney directly for a more complete response.


  4. I agree with my colleagues about what should have been done at or near formation. However, whether or not shares were issued does not depend on, say, the fact of delivery of formal stock certificates. Assuming it's a closely-held entity situation, you may have taken enough steps factually (e.g., taking in capital contributions on some understanding of % equity ownership, tax reporting, etc.) to justify treating the shares as having been issued "as of" of prior date.

    This response to your question is general in nature, and is not intended (and is not authorized to be received) as reliable legal advice upon which any action or decision can be based. Other facts and considerations not known may substantially affect the answer as it applies to your particular circumstances.