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Richard - Bizlaw
Richard - Bizlaw, Attorney
Category: Business Law
Satisfied Customers: 10639
Experience:  30 years of corporate, litigation and international law
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I need advice on completing the articles of incorporation.

Customer Question

I need advice on completing the articles of incorporation. Mainly shares and restrictions.
Submitted: 1 year ago.
Category: Business Law
Expert:  Richard - Bizlaw replied 1 year ago.

Hello, my name is***** will try to help you. Please remember I just report or interpret the law, so the outcome may not be what you hoped for.

What is the specific question you have?

Customer: replied 1 year ago.
My wife and I are switching from sole proprietorship to corporate business. I realize that the first year may not be profitable and this goes against advice to wait to turn a profit prior to incorporating but unless it is a serious matter other than the loss of tax advantages we will go ahead and incorporate anyways. Unless there are more serious concerns with this approach?
Expert:  Richard - Bizlaw replied 1 year ago.

There is no problem with incorporationg even though you are not profitable. You can maintain the tax advantage in a couple of ways. If you create a LLC that is a pass through entity and you will record the profit or loss on the business on your personal tax return. You can get the same result if you make what is called a subchaptere S election. I strongly suggeets you contact an accountantn to go over these options. Neither is very costly or complicated. If I have answered all your questions, please rate my answer great service as thata is how I get credit. If the answer was particularly helpful you can grant a bonus.

Customer: replied 1 year ago.
Is the LLC is a temporary corporate designation which can be switched to LTD. at at later date?
Expert:  Richard - Bizlaw replied 1 year ago.

No. LLC stands for limited liability company. If you want to have a LTD designation, you should be able to do that by creating a corporation and using the LTD designation instead of Inc. or Corp. You just make the subchapter S election. A subchapter S allows you be taxed like a partnership or sole proprietorship but still have the limited liability protection of a corporation. If I have clarified that please do not forget to highly rate my answer.

Customer: replied 1 year ago.
IF WE NUMBER OUR SHARES IN THE ARTICLES AS 1000 FOR EACH DIRECTOR (MYSELF AND MY WIFE) AND MAKE THEM COMMON. WOULD THERE BE ANY INSTANCE WHERE WE WOULD WANT TO AMEND THE ARTICLES IN THE FUTURE?
Expert:  Richard - Bizlaw replied 1 year ago.

The articles of incorporation establish the maximum number of shares the corporation can issue. For example, you might have the corporation authorized to issue up to 10,000 shares of common stock that has a par value of $0.001 per share. If the corporation issued each of you and your wife 1,000 shares, you would each have to pay at least $10 for the 1,000 shares because you must pay at least the par value per share. If you each own 1,000 shares you would each own 50% of the company because only the shares that are issued and outstanding are counted for ownership purposes. If in the future you wanted to bring in other shareholders, you would not have to amend the articles of incorporation because you would only have issued 2,000 of the 10,000 shares it is authorized to issue. If that answers your questions please do not forget to rate my answer.

Customer: replied 1 year ago.
Is there a particular method for establishing the value of shares for a new corp.
Expert:  Richard - Bizlaw replied 1 year ago.

For a new corporation, you just select the par value and the number of shares the corporation will issue. People use low par values so they can issue more shares but still pay the minimum filing fee which is often based on the aggregate par value of the shares. When it comes to how much the shares will actually be sold for the par value is the lowest price. However, you can select a higher price per share. For a new company you would normally determine how much you need to put in the company to operate it and then determine how many shares you want to issue to raise that amount. So for example, suppose you need to raise $10,000 and you want to issue a total of 2,000 shares. You could make each share cost $5 and each shareholder who got 1,000 shares would pay $5,000 for those shares. The 2,000 shares get the $10,000 needed. If you have any more questions please let me know.

Customer: replied 1 year ago.
I am juggling a few activities at once. making it difficult to take a call now, thanks though.
Customer: replied 1 year ago.
We really would prefer to avoid selling shares to raise operating capitol and would rather use a bank lender. At least at this point in time. what happens to the shares that we/corporation do not issue to ourselves. For example, we set the maximum number of common shares that the corp is authorized to issue @ 100,000. We then issue 10,000 to each of us. What happens the the other eighty thousand shares? Do they just sit in the minutes book. I assume we should receive some sort physical paper formatted indication of our shares from the corp. to put in a place other than the corps filing cabinets.
Customer: replied 1 year ago.
On the articles form I am filling out, there are 6 entries I am required to input. Correct me if you identify any issues. #1 Name of corporation - We have a name reserved which we will use here. #2 The classes and maximum number of shares the corporation is authorized to issue - We will enter; Unlimited Common Shares. #3 Restrictions, if any, on share transfers - We will enter; None. #4 Authorized number of directors - We will enter; 2. #5 Restrictions, if any, on businesses the corporation may carry on or on powers the corporation may exercise - We will enter; None. #6 Other provisions, if any - We will enter; None.
Customer: replied 1 year ago.
At the bottom of the form the Incorporator must sign date and indicate his address. The Incorporator would be me or my wife, correct?
Expert:  Richard - Bizlaw replied 1 year ago.

On #2 your shares would just be common shares, you do not need to refer to them as Unlimited. You also would put in that the number authorized is 100,000.

On the bank loan issue, you can just do the borrowing. But you need to put in some actual capital even if it is no more than the par value of the shares you issue. you must invest an amount equal to the par value so that the shares will not be subject to assessment by any creditors. That way your exposure is limited to the investment in the business.

The unissued shares just remain unissued and do not effect your percentage ownership of the company. As for the last entry you or your wife, whichever signs or both of you if both sien will be the incorporators. All your other entries are correct.

If I have answered all your questions, please positively rate my answer as that is how I receive credit. If you have more questions, please let me know. If the answer was especially helpful you can provide a bonus.

Expert:  Richard - Bizlaw replied 1 year ago.

Since I have not heard from you I assume I have answered all your questions. Please do not forget to positively rate my answer as that is how I get credit.