Legal Question in Securities Law in Illinois

Callable preferred stock

I own a mortgage firm with an eqity value of $1,000,000. We need to grow that number to $2,000,000. Currently I am the sole shareholder. I am considering offering callable prefered stock with a dividend equal to 7.5%. My objective is to not dilute my ownership percentage in case the value of the corporation significantly increases over the next few years.

Question 1. Is a callable preferred stock offering the right vehicle?

Question 2. I have no clue how to create the stock and the regulatory issues involved. Where do I go for help?


Asked on 5/11/06, 2:25 pm

1 Answer from Attorneys
Andrew May May Law, PC

Re: Callable preferred stock

A callable preferred stock is one way to go. You also may want to issue debt. You should retain an attorney to assist you in setting this up.

Generally speaking, a "security," which preferred stock is must be registered unless an exemption exisits. I can assist you in finding the right exemption for your company.

If you sell a security without falling within the correct exemption, in Illinois, the purchaser can rescind the transaction, i.e., get their money back, receive their attorneys' fees and get 10% interest from the date of purchase.

Several questions become apparent based upon your fact pattern. Is your company a "S" or "C" corporation? Also, what states do you plan to sell the stock in?

Best regards,

Andrew May

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Answered on 5/13/06, 4:35 pm


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