Can you briefly describe the different classes of stock that are available for corporations?
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Listen to the audio
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In this audio snippet, you'll hear about:
- Common stock and preferred stock
- How it's handled in bylaws
- S Corp can only have common stock
Audio Transcript
Jake:
I think one thing that many people don't take into consideration when
they decide to form an S–Corporation is the question about preferred
stock. Do they want to have preferred stock? That's a little bit of a
complicated subject matter in terms of what you want to do. We usually
recommend that you speak with an attorney and say, "OK, I've got these
investors coming on board. I want to give them preferred stock."
Really
think through how you want to handle that, because that is a big
decision that you will have to make. That would probably be one of the
things that I would definitely recommend people to think through about
forming an S–Corporation.
Travis:
OK. Can you briefly describe the different classes of stock that are
available for corporations and S–Corporations in general?
Jake:
Well, there are usually two types of stock. There is common stock and there is preferred stock.
Common
stock is just general stock that really anyone can own and it has a
certain set of rights. Preferred Stock is something special. It is a
special right that other stockholders do not have. That could be
liquidation preference. It could be valuation. It could be voting.
There are a variety of things that it could have preferential treatment
for versus common stock.
Travis:
And I imagine that how the company handles that stock is declared in the Bylaws or the Resolutions?
Jake:
Yes. You declare how that stock is and what the preference is in the Bylaws.
Travis:
OK. And S–Corp's can only have one class of stock, correct?
Jake:
Right. S–Corps. can only have common stock.
Travis:
Only common stock. So in that case, will how it's handled still be declared in the Bylaws?
Jake:
Well, you would just say that the S–Corp. will have this many shares of
common stock, but it would only apply to just the common stock. But
yes.
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