How to Distribute Shares in a Public Corporation

A corporation must go public before it can distribute shares and offer them as stock options to employees and contractors as a performance incentive. Additional offerings and filings allow a corporation to legally distribute company shares among interested buyers.. Here are steps to distributing shares.

Instructions

Difficulty: Moderate

Things You’ll Need:

• Corporate attorney
• Corporate accountant

1. If a privately held corporation, get approval from your board of directors to go public. Find an underwriter willing to buy any shares not purchased by the general public or investment firms in your initial public offering (IPO).
2. Select an investment bank to handle your transaction. Create a letter of intent that lays out the contractual obligations of both sides, as well as the fees the investment bank will charge. Your corporate attorney should review this document before it is signed.
3. Work with your corporate attorney to create a prospectus. You may also want to retain a specialized securities lawyer during this process. The prospectus will summarize the corporation's main function, financial situation, management and leadership strategy and availability of shares.
4. Present your prospectus to the SEC (see Resources below). Your securities lawyer or corporate attorney can file this paperwork for you, as well as the required S-1 form.
5. Work with the investment bank to decide which other banks will offer portions to investors after SEC approval.
6. Set up an escrow account into which money will be deposited.
7. Create stock certificates that you can fill in with investor information when the shares are purchased.
8. Announce your public stock offering via press release. Give the offering price and number of shares that are up for grabs.
9. Complete the sale and issue stock certificates to all buyers whose money is deposited into the escrow account.

Tips & Warnings

• Keep a master list of all stockholders' names and contact information to send them notification prior to each stockholder meeting.
• Expect the process of distributing shares to take five to six months. It may take longer if the SEC has questions about your paperwork or requests changes in your prospectus.
• Distributing shares illegally leaves your corporation open to investigation and prosecution by the SEC. Penalties include stiff fines, stock devaluation and jail time for directors or accounting managers discovered to be at fault.