How many shares to produce?
The issue of the number of shares to distribute is often a tricky question to ask of most small businesses and medium-sized businesses where there are between two and five shareholders concerned.
Although the circumstances of each individual is significant, there can be found a few advantages to distributing shares or to allot them. Let`s look at an example of a new company with a small number of shareholders who want to start contributing.
The three members of the company will be allocated just one share each. Here are the advantages:
â€¢ It should be easy for anyone to understand with fewer amounts of shares in issue.
â€¢ Having a small number of shares may make it easier to handle.
â€¢ Initial money required from the shareholders is limited.
At the other end of the spectrum, companies can customise hundreds or thousands of shares to shareholders of the three proposals. This method also has some benefits.
â€¢ The main advantage is the flexibility if, say, a shareholder wanted to sell part of their 100 shares. They can sell their shares for 100 while maintaining the rest. If all they had was one share, their options are much more limited!
â€¢ This flexibility may be also useful when you choose to allocate shares to existing shareholders or new shareholders. For example, if the intent is to allot more shares to certain individuals in future, then this can be achieved through the allocation of (say) 10 shares on top of their original 100.
â€¢ If there is a need in the funds to maintain the business, then a large number of shares can be issued at a premium or fee.
â€¢ Companies that have more shares – and the value of greater whole â€“ look more substantial than those with less capital.
â€¢ When considering whether to lend, the bank may want to see a number of shares issued and that the funds are committed to the establishment of the company. This is more favourable as opposed to a heavy reliance on the making loans to companies.
In each of these examples, the shares of the ownership remain equal. Whether the trio of shareholders have three or one hundred shares of stock, each one will retain the voting rights in the company.
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