If your small business is incorporated as either a C-corp or S-corp, you likely want to issue shares of stock for several reasons:
1. To grow your company by raising capital for your business; or/and
2. To show that your business complied with corporate formalities (see http://www.regallawoffice.com/blog/2011/02/16/safeguard-your-personal-assets-from-your-business-liabilities/.
However, in order to issue stock, you must register with the Securities and Exchange Commission (SEC) and comply with both federal and state securities law requirements. For additional information about the SEC requirements for small businesses, see http://www.sec.gov/info/smallbus/qasbsec.htm#eod6
California permits shares of stock to be issued without complicated filings and qualifications if the shares are exempted under Corporations Code Section 25102. Generally, a small business qualifies for an exemption under Section 25102(f) if the following are true:
1. the sale of stock are not made to more than 35 persons, including out-of-state purchasers;
2. Each purchaser either has a preexisting personal or business relationship with the company or its owners, officers or directors, or has sufficient business or financial experience to be deemed a “sophisticated” purchaser;
3. Each purchaser is buying shares of stock for their own account and not for purposes of reselling; and
4. The offer and sale of stock is not made through any publication or advertisement.
If your business qualifies for exemption 25102(f), you must electronically file a Limited Offering Exemption Notice (http://www.corp.ca.gov/forms/pdf/25102h.pdf) within 15 days from the date of issuance and pay the appropriate fee to the California Department of Corporations.
If you need help forming a business entity or complying with corporate formalities, we can help. You can contact us at 1-866-644-8011 or fill out our contact form.
****The opinion above is not intended to be legal advice and does not create any attorney-client relationship between its author and the readers. Please consult an attorney for information or advice specific to your legal issue. ****
Regal Law Office
21151 S. Western Ave. Suite 263A
Torrance, CA 90501