Stock Holdings In A Company

[flastate]

Is anyone in this forum familiar with stock holdings in a corporation? If so, please send me your comments. My son's have a Corporation, they are the only 2 Officers (P/VP) and hold 5 shares each at $1.00 per share. I manage their billing, customer base, marketing, payoll and taxes. I want to know more about the role in which stocks play in a Corporation. How are additional shares purchased (is this something that the Officers agree on at their Annual meeting?) Does the company pay any sum to the shareholders at the end of the year? I'm just searching for answers....

Donna

[Joyous]

Hi Donna

Here is an outline answer to this question based on UK Company law. I don’t know what the US equivalent is but I’d imagine it’s fairly similar and can be easily researched.

The UK equivalent of “stock holdings in a corporation” is shares in a limited company. A share in a company is basically the interest that a shareholder has in a limited company. The nominal value of the share ($1 in your case) is the amount that a shareholder has to contribute towards any debts of the company. So as your son has 5 shares if the company went bust and owed money, your son would have to pay $5 towards the company’s debts.

The nominal value of a share shouldn’t be confused with its market value. The nominal value only reflects a shareholders liability whereas the market value can range from zero to any amount depending on how well the company is doing. If a company is trading profitably the market value of a share will be much greater than its nominal value.

Being a shareholder of a company makes you a member of that company and give you certain rights such as the right to vote at general meetings and the right to any dividends. It’s also possible to issue different classes of share with different rights attached to each class of shareholding, e.g. the right to a dividend but restricted voting rights.

A person becomes a member of a company by way of allotment, i.e. he is allotted shares. In the UK directors cannot allot/issue shares without the authority of the existing members. This authority is granted by way of a resolution, basically a collective decision by the existing members. So if someone wanted to buy shares in your son’s company, your son and the other director would have to agree to allot that person shares at an agreed price. Nobody can buy shares in a company if the shares have not been issued.

Depending on the profitability of a company its directors may agree to declare a dividend. There is absolutely no obligation to declare a dividend. A company is entitled to reinvest any profits back into the company if it so chooses. Dividends are usually announced as “x pence per share”. So if a dividend of 20 pence per share is declared and you hold 100 shares then you get £20.

As I said earlier this is how it works in the UK. There may well be some differences in the US but I think that in the essentials the systems are pretty similar.

Regards

Joy