How to Have a Corporation Use Shares as Security

Posted by Anonymous , 9/4/2007 Tags:CorporationUseSharesSecurity
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How to Have a Corporation Use Shares as Security

Introduction

A corporation is a business entity that is legally distinguished from its owners and shareholders, protecting them from liability for the corporation's actions. Corporations can use shares of stock as security against takeover should they become publicly traded.

Instructions

Difficulty: Moderately Easy

Steps

1

Step One

Understand that whoever owns the most shares has the most control over the corporation. Since a share is a measure of ownership of the business, the more shares one owns, the more control one can exert.
2

Step Two

Make sure each person who owns stock in the company has accurate paper shares. Paper shares are particularly important when one's position of ownership is called into question. Legal battles over ownership can be easily avoided when physical evidence can be presented.
3

Step Three

Make sure the number of shares within the company is greater than the number that has been distributed outside of the company. Have the major managers and owners keep as many shares as possible for themselves in order to limit the danger of losing control of the company to outside investors or to another corporation.
4

Step Four

Keep your corporation private. Private corporations do not permit outside entities to buy stock, thereby helping to insure the security of the corporation.
5

Step Five

Create business partnerships with contracts that limit the number of shares one can buy or acquire. Such partnerships are clearly delineated at the beginning of the relationship, thus helping to keep the long-term security of the corporation in check.
6

Step Six

Create bylaws in the articles of incorporation that limit the number of shares available for purchase by the general public or by third party corporations. Amend your articles of incorporation at a later date if you wish to change this rule.

Overall Tips & Warnings

  • Employ legal counsel once your business has begun allowing its stock to be traded either publicly or privately. Ownership of the majority of shares is important if you want to maintain control of your business.
  • Understand that taxes are due on all stocks your corporation may own, particularly if their value increases. The actual tax amount varies from state to state, but an accountant or tax attorney can help you do the math and file the appropriate paperwork.

Overall Things You'll Need

  • Stocks
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