Can a Sole Owner Corporation Sell Shares?

By Cindy DeRuyter, J.D.

Can a Sole Owner Corporation Sell Shares?

By Cindy DeRuyter, J.D.

One of the defining features of corporations is their ability to raise capital by issuing shares of stock. This separates corporate entities from other types of businesses, such as sole proprietorships, limited liability companies (LLCs), and partnerships. Whether a corporation is the creation of one person or a group of people, it can sell shares of stock. However, because of the complexities involved in federal securities laws, sole owner corporations should consult with a business law attorney to ensure they comply with all requirements when issuing stock.



Shares of a Corporation

Generally, when someone establishes a corporation, they must identify the number of shares they plan to issue and provide stock certificates to owners. If a single person or another business entity owns the corporation, that person or entity owns 100 percent of the outstanding shares. When two or more people form a corporation, they each own a percentage of the company that's proportional to their initial investment.

Selling shares of stock in the company offers a way for the corporation to raise working capital to cover ongoing business expenses, fund growth and expansion, or pay for other projects.

Potential Loss of Control

If you are the sole owner of your corporation and decide to sell shares of stock, your company automatically becomes a multiple-owner corporation.

Sole owners of corporations should evaluate their options carefully before deciding to sell shares of the company. As sole owners, they have complete control over the company's business. When the owner issues shares of common stock to friends, family members, or others, it dilutes the owner's control. Inadvertently selling more than 49 percent of the outstanding shares could have unintended consequences.

One potential option is to work with a business attorney who can help create different classes of stock. You could choose to create and issue nonvoting shares of stock to raise money for the business without jeopardizing your control over it.

Securities Law Requirements

Different laws and rules apply to the sale of corporate shares, depending on whether the sale is public or private. To sell shares of your corporation to members of the public, you might need to go through a registration process with your state or the Securities and Exchange Commission (SEC). The registration process can be time-consuming and costly. However, ignoring the law can come with significant consequences.

In certain circumstances, you can sell shares of your company to non-family members under an exemption to federal securities laws. For example, there are exemptions for accredited investors and for certain de minimis stock issuance transactions that meet rigid qualification criteria.

If you want to sell shares of your corporation to friends and family members, it may qualify as a private sale. However, as with public sales, your stock must either be registered for sale or qualify for a registration exemption. Sales to family members are not necessarily automatically exempt; consulting an attorney can help you adhere to federal and state laws.

Selling shares of your corporation can help you raise money for your company's operations and growth. But before doing so, ensure that you are following the regulatory requirements to avoid potential legal consequences down the line.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.