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Ask a Lawyer -- Corporations
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Question: I am a part of an investment club with two other individuals where we make regular bi-weekly contributions. We want to take our current assets and create a holdings corp and issue shares based on each individuals principle invested in the investment club. Is there a way to continue the bi-weekly contributions to the new corp in exchange for shares? Response: I'd speak with a tax professional before rolling your investment club into a corporation. This would mean corporate franchise taxes. The club, also, may be required to pay the officers some sort of salary. I assume you are operating as a partnership which makes more sense for the standard investment club. Perhaps you envision transitioning to something greater that a small club comprises of family and friends. Mechanism for requiring ongoing, monthly capital contributions from shareholders? I think the best way to go about it would be through a shareholder agreement (i.e., the shareholders contractually commit themselves to make ongoing capital contributions). The contributions could be for additional shares of stock but this would not have to be the case. If all the shareholders own an equal number of shares and are making equal monthly contributions, I don't see the point to issuing new shares. The overall percentage of ownership shall not change. Maybe a tax accountant would have an angle on issuing new shares but it doesn't come to mind for me at first glance. A corporation can have authorized but unissued shares. For example, at incorporation 10,000 share are authorized but only 6,000 issued. The remaining 4,000 shares are available for distribution on terms set by the board of directors. These shares could be issued to the shareholders in exchange for monthly dues. At some point, however, the corporation runs out of unissued shares requiring a change to its bylaws and articles of incorporation (to increase the number of authorized shares). Submitted: 01/24/2008; John, Georgia Response: 01/29/2008; JJR Add A Comment |
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