Last updated on November 28th, 2017 at 11:01 am -
At any level of business, you’ll always need money. It helps with company startup, operation, and expansion. Someone’s always looking for payment. You also need to continue making investments to grow. Lenders and investors want to see progress before taking more risk. If you’re running out of cash flow options, it’s time to start raising capital.
How Cash Poor Companies Raise Business Capital
Through selling shares of stock, you’re least dependent on private funds. Most companies use this option as a last resort. It’s a risky method if you don’t do it right. Before you even think about selling, make sure your paperwork is sound. Know how to balance between authorized stock and the amount you’ve sold. Otherwise, you could lose control of the company.
Know which document determines the number of shares a company can sell? This is important to know how much money you can secure. It also helps you stay in control of company stock. Furthermore, it shows who has ownership in the company.
According to Investopedia, shareholders have stock in the form of issued shares. Issued shares are instruments to show ownership in the company. This is important because it can help with financial needs. Let’s say a business wants to bring on another partner with expertise. If they can’t afford to pay the partner, they can offer stock options.
Issued shares can also help businesses borrow money. Lenders will look at the shareholder who owns the largest percentage. A sound financial background and good credit score helps loan potential. The owner with the best financial history can have a larger stake to bring more to the company.
Which Document Determines the Number of Shares a Company Can Sell?
You may know the corporate charter document as articles of incorporation. It includes directions for the number of shares the company can sell. Owners who list their names agree upon the number of shares. The state government also approves the document. In most states, the Secretary of State website will provide a basic form to complete. When you first file the articles, you’ll list the following details:
–Purpose of Organization
–Number of Shares Corporation Can Issue
–Registered Office Street Address
–Names and Addresses of Directors
–Names and Addresses of Incorporators
–Printed Name and Signature of Incorporator
Some companies needs more detailed articles of incorporation. If so, it’s best to work with your attorney. Most state governments requires you to pay fees when filing. The Secretary of State will review and approve the document. This ensures your headquartered state recognizes your organization as official. At this point, you can conduct business. The company can also sell shares at their initial public offering.
How Can I Change Which Document Determines the Number of Shares a Company Can Sell?
The corporate charter lists the number of shares for sale and the price per share. This is how much a share of stock will sell for at the IPO. To change this information, update your articles of incorporation. Then file the amendment with the county clerk’s office.
The rules to make changes vary by state. According to Chron, you must get a certificate of amendment. Having that along with the original articles, you can propose changes. The small business can’t make changes to the articles alone. You must notify all shareholders and may need to hold a vote. The majority must approve the changes. Afterward, you can file the amended company article and fees.
How to Sell Company Stock
You’re past the first step of which document determines the number of shares a company can sell? Now your IPO numbers are ready to go. Still, it takes a lot more than your company charter to sell ownership. There are several options to begin selling stock. The most common are to either go public, sell to other businesses or investors, or sell to employees.
Major companies go public when they decide to start selling stock. It’s a huge step with a lot of red tape. It can be challenging to leave the comfort of your private company status. Going public requires displaying certain company information and financials to the world. That’s only one way the SEC requires you to comply. Decide if the expenses and legal requirements are worth it first.
Offering Stock to Businesses
Businesses and entrepreneurs sometimes look at other companies to invest in. Larger investors like venture capitalist will have the money you need. They might ask a lot of you though. Stick to smaller, private investors to avoid adding officers or making board changes. With smaller companies or investors, meeting funding goals might take longer. The legal process is more tedious too. Your decision depends on which challenge you’re up to.
Selling Stock to Employees
Who knows the company best other than you? Some use employee stock as an incentive. It helps businesses hold on to dependable workers. Still, you can take it a step further. Offering stock to employees helps you know exactly who holds your company in their hands. Depending on how you set up the program, the stock can replace cash rewards or raises. Expect only a slight increase in cash flow.
Don’t Be Greedy While Selling Stock
Remember, stock is a company asset. Selling it means selling part of ownership in the company. Leave yourself some flexibility. You may want to sell more stock later when you need more money. Finding yourself scrambling to buy back shares would also be tough. Stock options are also a generous way to reward loyal employees. That’s another reason you should only sell some of the authorized stock.
One of the top reasons for business failure is lack of cash flow. This can happen at any level of the game. That’s why you must understand how your stock works. Now that you know which document determines the number of shares a company can sell?, use it wisely. Stock is a precious company resource. If used carefully, it can be a lucrative asset for everyone. When it’s time to liquidate assets or fund a new project, you’ll be ready.
Need Funding For Your Business?
We can help! At LenCred, our goal is helping business owners like you. Whether you’re a startup or established, we can work with you. Our financial services company specializes in helping businesses get money. We help you secure funding to start or continue operating your business. If looking to preserve your own stock or buy someone else’s, LenCred is there for you.