Issuance of shares?

[Bobbyg223]

I have a question about the issuance of shares for the S corporation that I myself and my partner are forming. We are both even owners of all the business assets (which are not a ton of money). If in my articles of incorporation, I issued 1000 shares, split ownership rules would suggest that we each own 500 shares in accordance to us each having half ownership of the business. However the excerpt below suggests that it might be smart not too issue some of the shares in case we want to involve another investor in the future. This is a good point which I really want to keep in consideration. However im confused how that would work. I could incorporate and authorize the maximum of 1000 shares, and as the excerpt suggests only issue 250 to myself and 250 to my partner, while not issuing the other 500 at all. Now I understand that the shares are still divided evenly among me and my partner, but I don’t understand what happens with those 500 shares which are put aside for future use. Wouldn’t the 500 shares distributed to myself and my partner only represent 50% of the business’s worth? So even though we have an even split, we would only own half the assets? Or do these 500 shares issued to us act as the only “Active” shares of the business, and the other 500 are not considered to hold value until they are issued? Someone please help me make sense of this issue, I’m very confused.

Thanks,
Bob

“The articles of incorporation must state the maximum number of stock shares that can be issued by the corporation. There is no need to actually issue the maximum number of shares – you can issue a lesser number. For example, if a corporation has two stockholders, you can authorize a maximum of 1,000 shares, but give each stockholder only 250 shares. This way, you have the flexibility to add a third stockholder. Otherwise, if additional shares were needed, the articles of incorporation would have to be amended. There is no maximum on the number of shares that can be authorized, but be advised that some states base their annual corporation fee on the number of shares authorized.”

[SodBuster]

You have 5 minutes to answer completely.

At December 31, 2003, the Norbalco Company had 400,000 shares of common stock outstanding. Norbalco sold 100,000 shares on October 1, 2004. Net income of 2004 was $2,565.000, the income tax rate was 30%. In addition, Norbalco had the following debt and equity securities on its books at December 31, 2003

(a) 20,000 shares of $100 par, 10% cumulative preferred stock. Aa corporate bond yield was 11% at time of sale. Stock was sold at 102

(b) 30,000 shares of 8% convertible cumulative preferred stock, par $100, sold at 110 when Aa corporate bond yield was 11%. Each share preferred stock is convertible into two shares of common.

(c) $2,000,000 face value of 8% bonds sold at par when Aa corporate bond yield was 10%

(d) $3,000,000 face value 6% convertible bonds sold to yield 7% when Aa corporate bond yield was 8%. Unamortized bond discount is $100,000 at December 31, 2003. Each $1,000 bond is convertible into 20 shares of common.

Also, options to purchase 10,000 shares issued May 1, 2004. Exercise price is $30 per share, market value at date of option was $29, market value at end of year, $40 average market value May 1, to December 31, 2004, $35

For year ended December 31, 2004. Compute simple earnings per share, primary earnings per share and fully dilluted earnings per share.

[knowltondata]

<shaking head>

He just can't let the lie go.

[boazcat]

Answer the stupid question.

[Phil Nilsson]

<shaking head>

He just can't let the lie go.

What lies? ... these are the kinds of questions you get on the CPA exam ...

You ought to be banned for breaking forum rules .. you're more trouble than you're worth.

[knowltondata]

You ought to be banned for breaking forum rules .. you're more trouble than you're worth.

What's the matter Mr. Lesko? Lose your jacket with the question marks on it?