Legal Question in Business Law in California

Re: California corporation - deadline to issue stock

After some research, I did not find any law or policy requiring a newly-formed corporation to issue stock within a specific time frame, either by preparing and delivering share certificates or by making entries in its shareholder register or otherwise.

Nevertheless, I recommend that newly-formed corporations, and/or their promoters during the pre-incorporation planning phase, have a heads-up, documented approach to formal issuance of shares, including giving thought to (and documenting) such matters as percentage ownership, consideration to be given per share, number of shares authorized and actually to be issued, nominal per-share price or value, and so forth. This will avoid squabbles in the future. Also, failure to issue shares can be one factor in establishing an "alter ego" or veil-piercing theory against the founders.

It is not only OK that there were no shareholders in the first few months, I think it is rather common. A closer legal analysis would show that, although the newly-formed corporation may have taken no steps to "issue" shares, that it nevertheless had identifiable owners who might be deemed beneficial holders of the unissued shares due to having the contractual right (express or implied) to become, formally, the holders of a certain percentage of the shares at some point.

Note that Corporations Code sections 400 through 423 deal with shares and share certificates. Sec. 400 starts out with the words "A corporation may issue one or more classes or series of shares...." and does not anywhere use the terms "shall" or "must," nor is there any prominent case law indicating an obligation to issue shares at any specified time.

I would advise focusing on documenting the agreement between the co-founders, complying with Section 409 regarding the requirement of consideration, and then complying with the stock-issuance reporting requirements of Corps. Code Sec. 25102 (assuming it qualifies). There is a simple form available for reporting.