After you create a legal entity by either incorporating (C or S corporations) or forming an LLC, it’s important to know what to do next. Some states have extra requirements after you’ve completed all of the paperwork for your legal entity to become activated, and depending on the type of legal entity you chose you’ll want to make sure you’ve setup your bylaws or operating agreement. 

Regardless of where your business is located, it’s important to know how to start operating with your new entity at the front of your processes. Registering your business with a trusted partner can take away the worry that often comes with the laws and requirements being different in every state. However, below we’ll briefly cover the things to think about when you’re registering your business by yourself. 

What Every Business Should Do After Legal Formation

After you’ve completed all of the paperwork and filed it with your state, both corporations and LLC have a few similar steps that everyone needs to think about. Next, we list out the ones that every single business should keep in mind as you start operating under your new legal entity. 

Open a Business Bank Account

One of the best protections a legal entity can provide you personally, as the business owner, is the separation of business assets and personal assets. This financially helps keep you and your personal property safe from any poor business performance. In order to fully protect your personal assets, you’ll need to make sure that your finances aren’t mixed with your business finances at all. 

Creating a business bank account allows you to easily pay your bills and know how much cash your business has on hand at any given time. It’s a good idea to immediately open a business bank account as soon as you have all of the legally required paperwork. This includes both the registration of your business with your state and typically your federal employer ID number. 

Obtain Your Federal Employer Identification Number (FEIN)

Your federal employer identification number, or your federal tax identification number, is a unique nine digit number given to you by the IRS. This gives the government an opportunity to know who you are when you pay taxes and pay your employees. This is a requirement to obtain if you have and pay any employees at all, including yourself (unless you pay yourself only through profit distributions). 

You can apply online through the IRS website, via fax, or by mail. If you’re an international business owner you can apply via telephone during specific times. The responsible party for each business looking to obtain a FEIN must be an individual and not another legal business entity. 

Setup Business Payroll

If you have employees, you should setup your business payroll quickly upon receiving your federal employer identification number. You don’t want to get behind paying employees and you also don’t want to personally pay anyone out of your own account once you’ve incorporated or filed the paperwork for your LLC. You don’t want to give any reason to believe your personal and business assets should be mixed together. 

Setting up business payroll can be done a number of different ways but we recommend finding a software that you like and using it to help you through the process. Various software products will do all the payroll calculations and tax filings on your behalf so that you don’t have to add another headache to your business operations. 

Notify All Business Partners of Your Legal Entity Change

If you’ve been operating under a partnership then you’ll need to make sure every single partner receives written notification of the change of your business’s legal status. This should include copies of all the paperwork, showing exactly what it means for each partner and how much of the new business everyone owns. 

Start Operating Your Business

Now that you’ve legally formed your business, it’s time to start operating with your legal name or DBA (a name you’ve registered with your state for “doing business as”)! All of your practices moving forward should take into account the fact that you’ve now registered your business. 

This will mean something different for every business but outside of the clear financial changes (such as operating from a business bank account), your business may need to change the name you’re using on all communications. Your state may have unique rules that you’ll need to be aware of before operating your business so that you stay compliant, so it’s likely best to check with an attorney or a partner who specializes in business formations.

What to Do After Incorporating

If you’ve formed an S or C corporation, then your requirements after you incorporate differ slightly from other business types. The things that these types of businesses will need to do after they file include: 

• Review Incorporation Documents: Make sure everything you’ve filed was inputted and filed correctly. You don’t want to rely on information that wasn’t included in your incorporation documents. 
• Make Sure You’ve Completed All Steps: Some states might require additional steps to make your incorporation complete. Make sure you fully understand what those requirements are, or if your state even has any. 
• Create a Corporate Minute Book: Keeping meticulous records will be very important for your business moving forward. This starts with keeping minutes of each board meeting, which can be kept inside of your new corporate minute book. 
• Hold an Organizational Meeting: You need to hold your first organization meeting to formally announce the business structure and to adopt bylaws, which is an important step to finalize your incorporation.
• Adopt Bylaws: Adopting bylaws by which the business will operate is a legal requirement for all corporations. These will become important as the business operates moving forward and none of these should be taken lightly. 
• Issue Shares of Stock: Ownership in corporations is given via the issuance of shares of stock. When you incorporate you need to decide how many shares the business has (you can create more in the future) and who owns how many shares, based on the percentage of ownership each person or entity has in the business. 

What to Do After Forming Your LLC

Forming an LLC is a bit different than incorporating. If you’ve created an LLC, then it’s important to do these things after you’ve finalized the paperwork with your secretary of state’s office: 

• Review LLC Documents: This is similar to incorporating, but you need to make sure that all of your paperwork was completed correctly and that you understand what it all means. 
• Make Sure You’ve Completed All Requirements: When you form an LLC your state may have requirements to finalize your formation and make it legally valid. For example, some states require you to make a public post in a local newspaper that your business has been formed. Make sure you fully read your state’s requirements after you form your LLC to make sure you’ve abided by all requirements. 
• Create an LLC Minute Book: Formally documenting everything that happens in your business, or at least your big decisions, will be important moving forward. This is especially important if your business has multiple owners. The difference from a corporation is that LLC’s are not legally required to hold annual meetings and keep minutes. It’s still a good idea to organize the decisions of the business though. 
• Hold an Organizational Meeting: Every new business should have an initial meeting to layout the organizational structure of the business. For an LLC, this is a good time to adopt an operating agreement. 
• Adopt an Operating Agreement: Most LLCs will be required to draft and execute an operating agreement which the business will live by. Check out our article to understand the differences between an operating agreement and corporate bylaws. 

This is a pretty inclusive list of all the things you should be thinking about to either finalize the formation of your business or to start operating after your legal paperwork is complete. Using a service, like ours, takes a lot of this out of your mind because we provide the information and packages necessary to get all of the requirements out of the way. Register your business with us today and we’ll provide the peace of mind that your work is being fully completed!

Frequently Asked Questions After Incorporating or Forming an LLC

You may have more specific questions about whether or not you should do something after incorporating or forming your LLC. We’ve put together a nice list that’s inclusive of pretty much anything that you might be thinking about, which is relative to this type of activity. Check out our frequently asked questions if you don’t see the answer you’re looking for in this article.

You don’t need to be a United States citizen to sell on Amazon, but once you sell 50 or more items on the marketplace, you’ll need to have a proper tax id. However, if you’re selling through Amazon’s FBA (Fulfillment By Amazon) program then you’ll need to form a company in the United States before you get started. If you plan on selling more than 40 items per month then this is the most cost-efficient way to sell on Amazon. 

Requirements to Sell on Amazon

The Amazon marketplace is one of the most visited sites online today and is the industry leader for e-commerce sales. To sell things on Amazon you’ll be required to set up an Amazon account, provide a product feed to Amazon, or use their FBA program and send your products to an Amazon warehouse. There are legal requirements if you’re going to sell as a merchant that you’ll also need to be made aware of.

Regardless of the type of account you want to open, a non-citizen of the United States will typically have very similar requirements to citizens or residents of the country in order to sell on Amazon. These requirements, listed below, include obtaining your FEIN (Federal Employer Identification number). 

You don’t have to be a corporation to get your FEIN number and sell as an individual seller but it can be cheaper to register as a merchant, where you will need a registered business. If you’re not a resident of the United States then you’ll need the following information in order to register an FBA account, regardless of whether you’re selling as an individual or a business: 

• Your Home or Business Address: A place where you can receive personal mail. 
• Email Address: An address Amazon can send important information about your account.
• Credit Card: An internationally chargeable credit card with a valid billing address. 
• Phone Number: This will be needed to verify your identification during registration.
• United States Tax ID: Either a social security number (for individual sellers only) or an FEIN number. 
• Bank Information: You’ll need a bank that can take an ACH (automated clearing house) payment from Amazon. 

Additionally, if there are states where you have a tax nexus then it’s required for you to include your state tax id in all of those states. If you’re not residing in the country then this will only apply to any business dealings you may have in specific states for the business that will be selling on Amazon. 

If you have all of these pieces of information then you’ll meet the minimum requirements to sell on Amazon. You can move forward with registering your account at Amazon’s Seller Central. During the process, you’ll need to choose to either sell as an individual or as a merchant. Let’s take a look at the comparison. 

Selling as an Individual vs Merchant

If you’re going to be selling on Amazon then you’ll need to make sure you’re maximizing the amount of money you can make. Choosing the type of account you want to have on Amazon is part of this process. You can sell as an Individual and Amazon will charge you $0.99 per item sold plus referral and closing fees. 

You still have to pay those fees with a merchant account but instead of nearly $1 per item sold you’ll just pay $39.99 per month, regardless of how much you sell. So if you’re selling more than 40 items per month then you’ll likely want a merchant account, which requires your FEIN to register. 

Another option is to use Amazon Vendor Central if you’d prefer to be a vendor to Amazon’s products and their listings on the marketplace. As a vendor, you sell to Amazon and not to consumers through Amazon. While Amazon does the heavy sales lifting for their vendors, you’ll lose all control of pricing and placement. 

Fulfillment by Amazon

Another decision you’ll have to make during the registration process is whether or not you’ll want to use Amazon’s FBA option. This might be more difficult for non-U.S. based individuals and businesses. Essentially the program allows you to store your products in one of Amazon’s facilities where they’ll take care of all the order fulfillment and shipping for you. Additionally, the program allows your items to be put on Amazon’s Prime shipping program, which is the most used shipping feature on the Amazon marketplace. 

This is recommended for most businesses that sell a lot because it lowers your business operations and increases the amount of opportunity to get sales. You won’t have to worry about customer service or returns but you’ll have to get all of your products to Amazon in order to take advantage of the program. There are no additional restrictions to the FBA program based on where your business is primarily located. 

Once you’ve made these decisions then you’ll be able to register, either as an individual or business. Now let’s go over the requirements of registering a business in the United States for non-citizens and residents. 

Registering as a Business in the United States

Regardless of where your business is located, we recommend registering your business as a legal U.S. entity before applying to be a seller on Amazon if you plan on selling more than a few items per month. It’s a smoother process and the tax benefits of being a business could be beneficial for you. Plus, not only will registering as a business protect your personal assets but it typically makes the entire setup easier if you’re going to use FBA, and it’s required if you’re going to sign up as a merchant or a vendor. 

Luckily, you can easily register a business entity through the help of a third party that will draft and file all of the legal paperwork for you. All you need to determine is what type of business you want to create, as we discuss below, and who your registered agent is going to be. 

Getting a Registered Agent

Part of registering your business means getting a registered agent within the state your business is created. Most states require you to have a registered agent, which is a person or entity that can receive official legal notices and correspondence from the government. This is especially helpful and needed if you’re not a citizen or if you don’t reside within the country. 

Businesses routinely offer registered agent services to help businesses that do not have a physical address, in the event there is a legal notification to the business. Not selecting a registered agent could cause your business to fall out of good standing with your state, resulting in the business entity potentially being disbanded. 

Frequently Asked Questions About Selling on Amazon as a Non-US Citizen

There are many questions that you may have in regards to registering your business or selling on Amazon as a non-resident of the United States. Below we’ve collected the most common questions and answered them to help you quickly find the answer you need. 

How do I Open My Amazon Seller Account? 

Go to sellercentral.amazon.com and click the “Register Now” button. On the next landing page you’ll click the “start selling” button, which will prompt you to login to your Amazon account. If you already have an Amazon account of any kind you can use this login to access the seller services. However, we recommend creating a separate account from any personal uses of Amazon. 

You’ll then be taken through the steps of providing the information we discussed above to register your seller account. Once you’re verified you can start creating product listings and selling to the masses. 

How do I Get a FEIN Number if I Don’t Register a Business?

You can obtain your FEIN number by filling out Form SS-4, as provided by the IRS. You don’t need to have any legal status in the country in order to get this number. Once you have the number you can sell products on Amazon as an individual instead of registering your business. If you’re registering a business, then you should wait to get your FEIN through that process. 

What Types of Businesses Can Non-US Citizens Register When Selling on Amazon?

Currently, if you’re not a citizen or a resident of the United States you can only create two types of legal business entities: an LLC (limited liability company) or a C-Corp (or corporation). You can also create an S-Corp if you’re a permanent resident of the country, even if you’re not a citizen. 

There are many factors you’ll want to take into account when choosing between an LLC and a C-Corp. To learn more, check out our article on choosing the right business entity. 

Do I need a Visa to Register a Business in the U.S.? 

No, you don’t need a visa to register a business, however, the registration process doesn’t give you a right to travel to the country. This is why many foreign business owners choose to apply for a visa when they register for their business. The E-2 Visa is a common one applied to by startup business owners registering in the country for the first time. 

Register Today

You can get started with registering a business today so that you can sell on Amazon under an official business. The process only takes three steps and MyCompanyWorks will do all of the legwork to get your business registered and obtain your FEIN. Select the company type and state that you want to register in and get your the process of creating a business entity started immediately!

Corporate bylaws are the legal rules a corporation is operated by after the business if formed. Once the organization has a legal entity that has been filed with its state, the board of directors will typically decide on the bylaws which the company will live by going forward. Some examples of bylaws include listing a registered agent and defining the classes of stock for company ownership. To see what bylaws look like, you can see Microsoft’s at this link.

One of the main reasons LLCs became so popular for small businesses is that bylaws and other corporation complexities are not required. Instead, the business creates an operating agreement at the time the legal entity is formed. Many states don’t even require an operating agreement for an LLC to be formed and start operating. If you’re interested in forming an LLC you can learn more about your state’s requirements by checking out are State Startup Guides.

Why You Need Corporate Bylaws

Bylaws help ensure that your corporation runs smoothly. These rules outline the internal rules of your business, from a legal standpoint. The bylaws outline how decisions are legally made, who gets to vote, and the structure of how it works. If your business is very large, or you plan for it to be, then this will be helpful to make sure there’s organization to the chaos of both making big decisions and having a large ownership structure. 

The bylaws are important for all corporations to have, especially if you end up becoming a publicly traded one. This is because the bylaws outline how the official books are to be kept and what the reporting timeline looks like. Anyone wanting to invest in your business will want strict rules around how they’ll be able to keep up to date with what’s happening inside the organization’s performance. 

The bylaws also outline how the stock of the company is going to be divided up. It’s important for any business that plans to sell stock or take on investment money in the future to have a strategy behind the various classes of stock and how those stocks are transferred between owners. There also needs to be set rules around qualifying stockholders and knowing exactly who has a right to make business decisions and who doesn’t. 

However, the main reason you’ll create bylaws when you’re still a smaller company is because it’s required for all corporations to do so. What many small business owners don’t know is that you can start out as an LLC, which has more relaxed rules, and then as you start to grow you can switch to a corporation later. If you’re unsure of what the success of your business might be then this might be your best bet. 

Note: As of the date of publication, the only states that require your LLC to create an operating agreement are Delaware, New York, Maine, California, and Missouri. 

Example of the Benefits of Bylaws

All states have rules around how businesses are meant to operate and interact. If you’re not required to create bylaws, or an operating agreement for LLCs, you might still want to in order to counteract some rules in your state.

For example, some states might have a default rule that all profits are evenly distributed or that the legal responsibility for a company’s actions is evenly distributed among shareholders. In many cases you can actually get around these rules by having very strict bylaws that says the profits or legal responsibility is broken down much differently than the state’s rule. 

How Corporate Bylaws Work

Bylaws are pretty straightforward, like most legal contracts. The bylaws are not registered with your other incorporation documents that you provide to your state, but they can be equally important to operating your business. While you don’t legally file the bylaws with your state, it doesn’t make them any less enforceable. The bylaws are binding as soon as a majority of the board of directors votes them into action. 

The size of your corporation’s bylaws will heavily depend on the size of your business. You may want more relaxed bylaws early on and then you may want to enact more strict rules right before you take the company public. Things like the number of directors the business has will also have a necessity to change as time goes on and you grow in both revenue and employee count. 

Typically whatever the bylaws say is the law for your business. Legal entities typically have the right to operate internally in anyway that the majority of shareholders agree to. This means that while you’re legally bound to your bylaws, you have a lot of flexibility in how you can setup your business to operate the way you need. 

How Corporate Bylaws are Created

The creation of bylaws is simple from a legal standpoint. All you have to do is draft them and get a majority of the board of directors to vote “yes” on enacting the document. There aren’t a lot of rules that restrict you on the actual creation of your bylaws in terms of what can be included in them, but there are many common things that you should include to make the legal operation of your business clear and concise. 

Common Corporate Bylaws

Some of the most common corporate bylaws include:

• Your Business Management Structure: How many Directors will your business have? Who has the legal authority to make binding decisions for the business? Who is ultimately responsible for legal or tax filings and who is the contact person or group for your business?
  
• Your Business’s Registered Agent: If your business is going to receive legal notices or documents in the future then they will be sent to your registered agent. It’s important to keep this part of your bylaws up to date so that you don’t miss an important legal notice. Whomever you have in your official bylaws is the only person or group that has to be contacted for notice to be given to you.
  
• Classes of Stock: How much stock do you have in the business initially, what classes are there, and what are the rights and privileges of those classes? This is extremely important if you’re bringing on outside capital or going public.
  
• Voting Rights: This should be called out specifically so it is clear who has the legal opportunity to weigh in on big business decisions, like taking on outside capital or selling the business.
  
• How the Business Can Be Dissolved: This is important to include so that the only ways to dissolve the business are clear to everyone, regardless of any state statutes.
  
• Corporate Meeting Information: How often do the directors meet and what is the purpose of those meetings? Are these meetings the only time that big decisions can be made and if so, can the board of directors call a special meeting to vote on something important? How do you give notice of meetings to directors? These are all important things to spell out so that there is no internal legal dispute amongst shareholders.
  
• Dividends: If the shareholders have a right to dividends then it should be spelled out in the bylaws on when they might receive one and how it would be dispersed.
  
• Amendments: Any specificity you can provide on how amendments to the bylaws are enacted in the future will be important to make sure it’s clear how things can adapt and change over time. 

This list isn’t all-inclusive for every business. If you need complex bylaws, you should partner with a lawyer that is experienced in setting up businesses and enacting bylaws for many different types of businesses. 

Does My Business Need Corporate Bylaws? 

The real answer to whether or not your business needs bylaws is that it really depends. If you’re starting a corporation then you’ll need to draft a set of bylaws. However, if you’re a smaller business or unsure of what direction you want to take your new business, then you may benefit from starting out as an LLC, which means you won’t need corporate bylaws. We do recommend that you still craft an operating agreement, even if it’s not required in your state, especially if your business has more than one owner. 

Getting Started With Corporate Bylaws

Whether you’re getting started with your corporation and need to enact specific bylaws for your business, or you instead want your legal entity to be an LLC, we can help. My Company Works has completed over 60,000 legal business formations and our packages include an Operating Agreement (for LLCs) and Bylaws (for a corporation).

Opening a business bank account is a simple four step process that can typically be completed in less than an hour, if you have prepared beforehand. You can open a business bank account either online or in-person, but doing so online will typically take longer and could require additional documentation. 

Before you open a business bank account you’ll need to provide an employer federal tax identification (FEIN or EIN) and your legal registration documentation. If you haven’t yet incorporated your business, MyCompanyWorks can do this for you with a simple three step process that only takes you a few minutes to order online.

You can open your business bank account by following these four steps: 

Step 1 – Determine What You Need in a Business Bank Account

There are many things you should consider before you move forward with opening a business bank account. First of all, what type of bank account do you need? While most businesses start with a business checking account, a savings account might also be a consideration if your situation dictates. The fees your bank will charge should also be a strong consideration on which type of account is right for you. 

The most common types of business bank accounts are: 

• Business Checking Account: This is an account you can freely move money in and out of as your business needs occur. If you have lots of transactions that you need to make with deposits and bill payments then this is the account that is most likely right for you. This is also the most common type of business bank account.
  
• Business Savings Account: This is an account that you can make deposits to where you’ll earn extra money every month for keeping it in your account. You’ll be limited on the number of withdrawals you can make though, so this is only for businesses not looking to make frequent payments out of the account.
  
• Free Business Checking Account: This type of account operates just like a normal checking account but there are no maintenance fees and may not have a minimum account balance requirement. These accounts are typically online business checking accounts so it is right for newer businesses that don’t need a physical branch nearby.

Once you’ve determined the account that you need then you should determine how much you’re willing to pay every month for maintenance and security. Having a physical branch nearby is important for businesses that take on a lot of cash that needs to be deposited on a consistent basis. If you just need a business checking account to sign up for affiliate programs for your online business or to get your business off the ground then an online free checking account may suffice. 

Step 2 – Find the Right Bank for Your Business

Now that you know the type of account you’re looking for, you can narrow down which bank you’d like to work with. Oddly enough, the bank choice is made by proximity more than anything else for the majority of small businesses. Most businesses just want a bank with a name they can trust that is close to their base of operations. This makes transactions easy in the event the business owner has to go into the bank. 

While many business owners are satisfied with proximity, you probably should consider other things when choosing the right bank to partner with. There are a number of factors that should be considered when picking the bank, such as the banking fees and other costs. The factors we recommend include: 

• Bank Network: How convenient is the bank’s network to your operations? Are there plenty of free to use ATMs and deposit locations that meet the needs of your business? This is especially important to investigate if you’re opening a business bank account with an online provider without close proximity to a branch location because you need to know where you can withdraw funds from without paying a fee.
  
• Online Experience: How easy is it to transact business using an online website or phone app? Considering how much business is transacted online these days, this should be an absolute must that meets the demand level of your business needs.
  
• Costs: How much are the fees? Are you going to be paying a maintenance or security fee, and if so how much do you pay? Do your fees increase if your balance dips below a certain amount? These are all important things you should ask before signing on the dotted line and making your first deposit.
  
• Integrations: Small businesses typically use an accounting software like Quickbooks. Your bank should make your life easier, not more difficult. So, you should make sure that whatever accounting software you need, it integrates with your bank. If it doesn’t then you, or your accountant, will likely regret it later.

Once you’ve taken these things into consideration, and all other important aspects of the banking relationship that is important to you, then you’ll be ready to make a decision. Remember, the right bank doesn’t need to have a big name to be the right partner for you. For example, many credit unions and online banks have been great partners for businesses of all sizes. 

Step 3 – Gather the Right Documentation

Before you open a business bank account you’ll need to make sure that you’ve correctly incorporated your business. The bank will ask for your corporate documents before you’re able to make your first deposit. Having the right documentation with you at the time of application will speed up the entire process, and enable you to walk away with a business bank account the same day you apply, in many cases. 

The documentation that you’ll need to gather could include (call the bank before you visit to make sure you have it all): 

• Employer Identification Number (EIN)
• Social Security Number (if you’re an unincorporated sole proprietorship)
• Business Licenses
• Business Name Filing Document (if applicable)
• Partnership Agreement (if applicable)
• Articles of Incorporation or Organization (and appropriate banking resolution)
• Explanation of Your Business
• Funds to Deposit
• Some online banks may require more documentation to verify your identity

You can obtain most of this by incorporating your business ahead of time. MyCompanyWorks has been trusted to complete more than 60,000 business formations and counting. In just three easy steps you can be on your way to receiving all of your documentation so that you can immediately open a business bank account. 

Step 4 – Deposit Funds With Your Bank

Once all of your documentation is verified, the bank will process your application and open your account. To finalize the account opening process you’ll be required to deposit funds into your new business bank account. Many banks will not require a certain deposit amount while others will require up to $1,000 as the minimum opening deposit even if they don’t require a minimum balance during the life of the account. It’s important to check with your bank before going through the process so you’re prepared to finalize this portion of the process. 

Once your funds are confirmed into your account then you’ll be able to immediately access them through the checks that your bank will provide. Some banks will immediately provide a debit card while others will send them in the mail within 7-10 business days. The length of time it takes for your funds to show up in the account will depend on the bank you choose and the method you choose to deposit your funds with. For example, cash will be available a lot faster than a wire transfer from another bank (even if it’s your personal bank). 

Benefits of Opening a Business Bank Account

There are many benefits for both you, as a business owner, and for your business when you open a business bank account. The most important one is that you should always keep your personal and business funds separated. This can protect you from personal liability in the event that something goes wrong in your business. For example, if your business files for bankruptcy in the future then mixing your personal funds with your business funds could put your personal assets at risk and attainable by the business’s creditors.

Other than the legal ramifications of opening a business bank account, you can also benefit from being able to easily pay your business’s bills and making it easy to pay your employees. It keeps your money safe and allows you to start building a banking relationship that you could utilize for needed loans to grow your business in the future. 

Getting Started

If you’re ready to take advantage of the benefits of having a business bank account, you can get started today by registering your business. MyCompanyWorks will do this for you and you can get started immediately with our simple three step process. All you have to do is select a company type and your state, fill out a quick online form, and then you’ll receive the needed documents to open a business bank account. 

Corporate stock refers to a type of ownership in a legal business entity, such as an C-corporation. Corporations typically issue stock to raise money from investors to fund capital expenditures or future growth. Typically corporate stock is broken up into common or preferred stock. Both can be beneficial depending on what the situation is for your business.

If you’re interested in issuing stock to raise money then you should make sure your business is setup as either an S-corporation or a C-corporation. MyCompanyWorks can help you whether you’re a brand new business or you currently have another entity type, like an LLC, that needs to transfer over. You can quickly fill out the online form to get the process rolling today.

What is Corporate Stock & How it Works

Corporate stock is broken up into shares that constitute an ownership interest or equity in a business. Each share represents a proportionate ownership interest in the corporation. Shares of corporate stock can be purchased and sold in two different ways: either via a single private transaction, typically to a single private purchaser, or to many purchasers through a regulated stock exchange. 

Just because someone owns corporate stock doesn’t mean they have any legal obligations to the business itself. However, all financial benefits of stock ownership must be reported to the IRS as income to the individual. If there is a financial event, such as a dividend paid by the company or a sale of the stock of the company, then the shareholders could benefit depending on the legal rights of any debtor’s of the business. 

There is no set number of shares that a business must issue when deciding to sell or give corporate stock. Many businesses will start out with between 1,000 – 100,000 shares of stock that is typically broken up between common stock and preferred stock. Those owning common stock are shareholders that have voting rights based on the number of shares they own. The number of total shares can increase as the business grows.

Why Companies Issue Stock

Generally a business issues stock in order to prepare for a financial event, such as raising money to grow the business or in preparation of taking the company public. Instead of taking on debt financing, like issuing bonds or taking out a loan, a company will issue stock to raise money through what is called equity financing. 

You may want to issue stock for a number of reasons, including: 

1. If you can’t, or don’t want to, take on debt due to cash flow or credit issues.
   
2. If you need more cash available than debt financing would allow.
   
3. If you lack sufficient assets to take on debt financing.
   
4. If you’re planning to grow quickly and can’t afford to be viewed as a risk due to debt. 

However, you may want to consider not issuing stock and selling shares of the business if you’re worried about giving up ownership of your business. In order to get the shares back you’ll need to buy them back in the future, if the shareholder agrees to sell. If you sell too many shares of your business then you could end up struggling to have the power to make big decisions for the business. 

Types of Stock

Typically, all corporate stock is broken up into either common stock or preferred stock. Common stock can provide a larger increase in value if the business grows but preferred stock typically allows for a more consistent dividend.

Common Stock

Common stock is the most popular and widely used type of stock. This is the type of stock that has all of the traditional power of being a business owner. These shares are allowed voting rights and whomever owns the majority of the common stock controls the decisions that are made within the business. Common stock is often believed to be the type of stock ownership with the best return on investment. Shareholders may earn dividends but they vary and are never guaranteed. 

The two types of common stock are: 

1. Common Growth Stock: This is typically the type of stock referred to when someone wants to issue “common stock”. Shareholders owning this type of stock have voting rights and can receive dividends but the most common benefit is the increase in value per share that shareholders can earn from a fast growing company.
   
   
2. Common Income Stock: This is similar to common growth stock but is considered to be a more secure investment. This type of stock is typically issued by well established businesses. Instead of profiting off of the quick growth of the business, shareholders benefit from high dividends. 

Preferred Stock

Preferred stock also represents ownership of the business but typically does not come with any voting rights. Instead, shareholders are just looking to profit off of the growth of the business without having anything to do with the operations. When dividends are paid out on preferred stock then the business typically guarantees a set amount per dividend in perpetuity. For example, as long as the company hits certain financial parameters, each share pays out a dividend of 5% per quarter. 

Convertible Preferred Stock

Convertible preferred stock operates as normal preferred stock with dividends and no voting rights with one big exception. The owner of this type of stock has the right to trade their shares for common stock by a pre-specified date. This is typically a nice balance for someone that needs income in the present day but who still values the long-term investment of a growth stock. 

Corporate Stock Classes

While common and preferred stock are the two main types that are issued, your business can classify stock any way you would like to. Most of the time this means issuing different classes of stock for the sole purpose of breaking up the voting rights. The most common classes are classified as class A and class B stock. 

For example, you could issue class A common stock and class B common stock. Class A could have 100 votes per share and Class B could have 25 votes per share. This enables you to better control who has the decision-making power with the business as you continue to raise equity financing. 

Which Type of Corporate Stock to Issue

The type of stock your business decides to issue is dependent on what your goals are. If you’re looking to raise money and are willing to pay out a consistent dividend then you’ll likely want to issue preferred stock. However, if you don’t want to pay a dividend or want it to be dependant upon company performance then you may want to consider common stock instead. 

The key thing to keep in mind is that regardless of your strategy or the types of stock you issue there are ways to make sure you keep the controlling interest in the business. You just need to make sure you break up the stock into different classes or only issue the controlling number of common stock shares to yourself. 

How to Issue Stock

If you’re looking to issue stock then you should follow a number of steps to make sure you do it correctly. The key here is that you don’t want to do this on your own. You should consult the proper attorneys that will enable you to legally issue the type of stock that will benefit your needs. 

Here’s six steps you can follow as you look to issue corporate stock: 

1. Form a Corporation: In order to issue stock you’ll want to be either an S-corporation or a C-corporation. You can get started here.
   
   
2. Determine Your Funding Needs: Before issuing stock you should know how much capital you’re looking to raise so that you and your advisors can properly strategize what you need to do. This amount will guide the entire process.
   
   
3. Determine How Many Shares You Can Issue: Before you can issue any corporate stock you need to  know how many shares to start with. The articles of incorporation within your corporation’s registration will provide a maximum number of shares but you do not have to issue all of those shares at one time.
   
   
4. Get Your Business Valued: Getting a business valuation will help you determine the value of each share of stock so you can properly sell the shares.
   
   
5. Determine the Type and Class of All Shares: This is where you work with your advisors to make sure you’re issuing the right types of corporate stock that will help you achieve your business goals.
   
   
6. Check All Securities Laws: Work with an attorney to make sure you’re in compliance with all securities laws. 

Each of these steps requires careful consideration of both the laws and your business’s goals. While issuing corporate stock can be very beneficial to the short-term gains of your business, you may regret issuing stock down the road if you don’t do it correctly. You should also consider alternatives to issuing stock before jumping in and doing it, such as taking out a loan. 

Getting Started

Issuing corporate stock can be a complicated process, but it can help you raise the capital you need to achieve your lofty growth goals. The first step is to make sure your business’s legal entity is a corporation. You can get the process started by filling out a simple online form.