Dear experts,
I have some basic questions about shares transfer. I have just set up a C-corporation in CA. The corp is authorized to issue 10,000 common shares. I have bought 8000 shares on par value ($1 per share) for $8000. I am now the sole shareholder. Now, one potential investor wishes to buy some shares of my company, like 20% of the total, and I will be 80%. My questions are:
1.Can my company sell the other 2000 authorized un-issued common stocks to the investor?
2.Can my company sell the above shares for a higher price? (higher than the par value)? If both agree on the price.
3.Or I sell 1600 shares of my own to the investor for a higher price? If so, the investor will pay me directly, right? But I wish investor invest the money to the company, not to myself.
Which is better?
1. Your company scan ell the remaining 2000 authorized un-issued common stocks to the investor at whatever price you agree upon.
2. You can sell oyur shares to the investor and will be required to report the gain on the sales for tax purposes. The investor must pay you directly for your shares.
Which is better cannot be answered without additional information about the company. If this company is an extremely valuable entity, you and the investor should both retain attorneys and engage in an arms length transaction in the sale and purchase of the shares.
Good luck!
Phillip M. Smith Jr.
Los Angeles Tax & Business Attorney
Licensed before the United States Tax Court
Call: 323-292-4116
My colleague Mr. Smith is correct. I think however that to properly issue shares or sell shares you need an attorney. If improperly issued, then subsequent sale may cause major headaches. If you sell your shares are a profit, you will have a capital gain to advise your CPA. The corporation could sell shares than a higher price than it originally sold to you. Finally why you gave a par value to your shares is anyone's guess. For every company I represent they have issued no par value stock, but you have decided to proceed so far without legal counsel.
David B StrombergBusiness AttorneyWalnut Creek, CA ·
Your company can certainly sell the remaining 2,000 shares to an investor. This happens all the time. If the company is the seller, the value of the shares can be determined by an audit to ascertain the value of the company first. Alternatively, if the company and the investor agree on a value for the shares, then the company's Board of Directors can authorize the sale. Even though you are the sole shareholder, it is the Board of Directors, not you as a shareholder, who makes the determination whether to sell the outstanding shares to an investor, and at what price.
Whether you can sell any of your shares depends on what is contained in your company's bylaws. Typically, these bylaws contain restrictions on the sale by a shareholder of any of his/her shares. You should consult the bylaws or have them reviewed by legal counsel first.
If the company sells the remaining 2,000 shares, keep in mind that if in the future there is a reason to bring in another investor, the Board of Directors will need to authorize a second issuance of common stock.
1.Can my company sell the other 2000 authorized un-issued common stocks to the investor? Yes, as long as the shares are authorized to be issued by the corporation.
2.Can my company sell the above shares for a higher price? (higher than the par value)? If both agree on the price. Touchy area. If you paid cash of $8,000 why are your shares worth more now than the new investor? As a corporate officer and director, you have a fiduciary duty to shareholders to treat them fairly. If you put more than $8,000 cash (assets etc.that have real value) you may be able to justify higher share amount.
3.Or I sell 1600 shares of my own to the investor for a higher price? If so, the investor will pay me directly, right? But I wish investor invest the money to the company, not to myself.
Which is better? See #2
