The Documentation Needed to Issue Stock Options in a Startup
Starting a business often requires a significant amount of financial capital. When a startup or small business needs to raise money, it may decide to issue equity or stock options. The only documents required for a company to issue stock are a stock certificate or book registry; these are usually issued or recorded during the company's first official organizational meeting.
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Incorporation
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Before a company can issue stock, it must first be officially incorporated. This means that the company's business structure must be formally registered with local, county and or state officials as required by law. Companies that can issue stock options include C corporations and S corporations. In contrast, limited liability corporations (LLCs) issue membership certificates, and limited partnerships and limited liability partnerships can issue partnership interests.
Stock Options
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When a corporation issues stock options, it is dividing the ownership of the company among its investors. The amount and type of shares a corporation issues are determined by the company's articles of incorporation -- a legal document filed with state government that establishes the rules governing the management of the business. A company must issue at least one share of stock and can choose to issue all shares at once or a little at a time.
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Documentation
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A corporation's board of directors can issue stock in one of two ways. It can issue physical stock certificates, which state the owner's name and the amount of shares owned, or it can record share ownership via book entry. If the company issues certificates, each owner receives her corresponding certificate. Stockholders whose shares are recorded in the company's books, or stock registry, receive a formal letter stating their ownership share. Several online resources specialize in making company stock certificates.
Shareholders
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A person who owns stock in a corporation is a partial owner of that company. As such, stockholders usually have the right to sell their stock at their personal discretion. Certain companies, however, may require that shareholders agree to restrict this right. Shareholders who retain their stock are entitled to a portion of the company's profits, or dividends, proportional to their investment in the company. Dividends are usually paid on a quarterly basis once a company becomes profitable.
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References
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