Forming a C-corp: should I allocate Preferred stock from the get-go?


1

While creating my C-corporation on LegalZoom, a question asks how much should I issue of both Common and Preferred stock. What's a good rule of thumb for this?

Is Preferred stock even needed if I don't plan on immediately raising any money?

Corporate Structure Stock Options Corporation

asked Mar 2 '14 at 19:50
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Jim Crowell
50 points

1 Answer


2

I would keep things simple and start with common only. If you authorize excess stock, and don't issue it, it can potentially increase you DE annual franchise tax, so don't authorize more than you need.

Plus, the certificate of incorporation sets for the rights of the preferred stock. Until you have an investor, you don't know what rights they will require the preferred stock to have. So, you will have to amend your certificate of incorporation anyhow (even though the stock is authorized, you will still need to add provisions for dividend rights, liquidation rights, conversion rights, etc., all of which are negotiated terms). So, to make a long story short, there really is no benefit to doing it now.

answered Aug 25 '14 at 21:05
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David Wittmann
161 points

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Corporate Structure Stock Options Corporation