STOCK ISSUANCE CAN BE VERY EXPENSIVE
As you know, stocks are issued to formally document fractional ownership of a corporation. Typically there are 10,000,000 shares issued. As a result, one share of stock is 1/10,000,000th of the total. That fraction I call one “Fract”. I coined that term to create Fracts as a substitute for shares of stock in anticipation of issuing share of stock in the future. According to experts, is not uncommon for companies to spend tens of thousands of dollars, or even hundreds of thousands of dollars, to register stock with the SEC.
A FRACT IS THE SAME AS A SHARE OF STOCK
A Fract costs nothing to create and it avoids a great deal of time and money involved in the issuance of stock.
ISSUING STOCK IS A COMPLICATED AND COSTLY ACTION
The actions needed to issue shares of stock are
- Authorize the issuance of shares. The board of directors must authorize the issuance of shares. This is done by passing a resolution that specifies the number of shares to be issued and the type of stock (common or preferred).
- File an amendment to the articles of incorporation. If the corporation is increasing the number of authorized shares, it must file an amendment to its articles of incorporation with the state where it is incorporated.
- Issue stock certificates. The corporation must issue stock certificates to each shareholder. The stock certificate is a legal document that represents the ownership of shares in the corporation.
- Record the issuance of shares in the corporate records. The corporation must record the issuance of shares in its corporate records. This includes updating the stock ledger to reflect the new shareholders and the number of shares they own.
- Prepare a shareholders’ agreement. A shareholders’ agreement is a contract between the shareholders and the corporation that outlines the rights and responsibilities of the shareholders.
- Register the stock with the Securities and Exchange Commission (SEC). If the corporation is issuing stock to the public, it must register the stock with the SEC. This process is complex and can be expensive, so it is important to consult with an attorney before registering stock with the SEC.
The following costs are associated with registering stock with the SEC:
Filing fees. The SEC charges a filing fee for each registration statement. The amount of the filing fee depends on the type of securities being registered and the amount of money being raised.
Legal and accounting fees. The company will need to pay legal and accounting fees for the preparation and filing of the registration statement. These fees can be significant, especially for smaller companies.
Underwriting fees. If the company is using an underwriter to sell the registered securities, the underwriter will charge a fee for its services.
In addition to the above costs, the company may also incur other costs associated with registering stock with the SEC, such as printing and mailing costs and investor relations costs.
Total costs for registering stock with the SEC can vary widely depending on the size and complexity of the offering.