Legal Question in Business Law in California
What is the procedure to issue common stocks to founders for the first time?
2 Answers from Attorneys
There is an old saying in the securities trade that there are three kinds of stock offerings: registered, exempt, and illegal. Obviously, categories one and three are not what you want, so you are left with finding an exemption from registration that fits your needs.
Fortunately, both state and federal securities laws recognize that there is no realistic or practical reason to require registration of securities issued to the insider/founders of a small corporation, and so there are exemptions that can be claimed. The California exemption is found in Corporations Code section 25102, subsection (f). You may want to look it up.
A corporation claiming exemption under Corps. Code 25102(f) should prepare and file with the Commissioner of Corporations a "Limited Offering Exception Notice." Look up http://www.corp.ca.gov/LOEN/default.asp and follow the directions. There is a modest fee and the instructions are relatively simple.
This usually is done during the creation of the corporation and often at the first organizational meeting of the directors. In addition to issuing the shares and completing the stock certificates, you will need to file the Limited Offering Exemption Notice with the California Department of Corporations. I have a blog post that explains this further:
http://ocbusinessentertainmentlaw.blogspot.com/2010/03/limited-offering-exemption-notice-loen.html
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