Issuing Shares for Your Corporation

If you are approaching the phase of your business where incorporation is the next move then congratulations!

This is a positive step towards expanding your business and bringing in an infusion of cash.

Every province will have their own distinct set of rules for articles of incorporation. Some of these "zones" are more corporation friendly than other regions. No matter where you land, you'll more than likely be required to write up bylaws, explain the roles on your board of directors and their responsibilities and issue stock.

Questions such as: how many shares should be authorized for an incorporation? Who should be listed as officers and directors? How many shares should be created?

You'll have to look at the big picture of your business for the right answer.

Millions of Shares

Every single stock certificate represents a piece of the company. The owner of that stock is entitled to a dividend based on the stock's performance and the amount of stocks they own. A typical offering of common stock could be anywhere between 10 to 15 million shares.

You can break this down as 8 million shares divided among the founders and 2 million shares for an option pool. The rest can be held in reserved and released down the road. Whatever amount you settle on for the initial release you have to stick to the number.

If you want to increase the amount of shares available that will have to be put to a vote by the board of directors and shareholders because they are all now part-owners.

That first number of shares is also important when you are considering offering them as employee incentives. In other words, you don't want to give everything away all at once and you want to make the incentive large enough to attract good talent.

Stocks for the Small Business Owner

Set aside the headline grabbing IPOs like Facebook or Yahoo. The typical startup can have a stock price share beginning at around $15. Add them up to 20 million shares and you've got a $300 million market cap. That would be an extremely successful IPO launch. It also allows for plenty of buffer room that can prevent stocks from splitting at the time of the launch.

From a small business perspective, you can incorporate your company and issue a single share of stock. Keep in mind that the more shares you do end up issuing the more you'll pay in corporation filing fees.

Before making that call, plot out where you see your business in 5, 10 and 20 years from now. If it's just going to be you and your family running things you might not need to go big. However, if you're goal is to go global, let your stock offering reflect that plan.

For more information on shares, articles of incorporation, and how to incorporate your business in Canada, please visit our website.

Reverse Takeovers - Evaluating a Possible Alternative to the IPO Exit Strategy

From the very first business contract there were loopholes. These are ways around a particular rule or guideline that offer a more desirable outcome. It isn’t breaking the law, but coming up with an alternative approach.

That’s the best way to describe a reserve takeover: it’s a loophole to expedite the IPO strategy and provides a viable alternative for private companies to become publicly traded companies without a lot of hassle.

The Basics of a Reverse Takeover

In a reverse takeover, a private company buys controlling interest in a publicly traded company. The private company then merges with that public entity and in effect becomes a publicly traded company. The original public company is known as a shell company. That’s because all that really exists is the organizational structure and all that comes with that in terms of approved documents, corporate filings and other paper work.

The shareholders who are part of the private company assume a majority stake in this shell company and thereby are granted controlling interest. If the shell company is in compliance then this type of transaction can be completed in a matter of weeks as opposed to months (or years) following the normal course of filing for an IPO. There needs to be due diligence in terms of the proper disclosure forms filed once the merger has been enacted.

The Pros of a Reverse Takeover

On the top of the list of benefits of a reserve takeover is the potential for bigger earnings. The contributing factor is because there is less stock dilution than with a traditional IPO. There is also no need to raise capital as you would with the former IPO which makes this an affordable and streamline process.

The reverse takeover is often less beholden to the fluctuating and sometimes volatile market conditions. Even the hint of a bad review or negative earning potential can send a stock plummeting. That is not something you want released on the day of your IPO offering.

Look no further than the IPO offering of Facebook for a perfect example of this.

Finally, because a reverse takeover is less time consuming, the private company in play can focus on their business instead of all enormous “to-do” list required to get ready for a standard IPO. In the long run that’s going to be good for business all around.

The Cons of a Reverse Takeover

Think of a reserve takeover as moving your business into an established warehouse building. There might be some problems with that “warehouse” that could impact your business. The shell company might have some sloppy bookkeeping practices or pending lawsuits.

 There might even be some greedy shareholders who want to dump their shares right out of the gate. That could impact the offering. This can be avoided with a share lockup put into place before the merger.

There is also a huge learning curve for a private company to go through once it enters into the world of a publicly traded company. Sometimes those board members aren’t ready for the new game.

Is a reverse takeover right for you?

Facebook's IPO Lawsuit: What Went Wrong?

In many ways, the Facebook IPO can be looked at as the perfect storm of how not to launch a public company. Leading up to the stock sale, media outlets were breathlessly hyping how much money founder Mark Zuckerberg and his team would be making. Nearly every news program was offering tips on how the small investor would have to wait in line to buy their handful of shares and be a part of this “history-changing IPO.”

Then reality hit and Facebook fizzled. What went wrong?

Right out of the gate there were problems. The U.S. stock market rings its opening bell at 9:30 a.m. The IPOs usually start trading about an hour later. However, Nasdaq informed everyone that Facebook trading wouldn’t start until 11:00 a.m. It actually didn’t start until 11:30.

In that first wave, close to 80 million shares were being bought and sold in a matter of seconds. And in that same blink of an eye, traders were complaining that their orders weren’t being properly processed. In some cases, they were getting shares at a higher price.

The NASDAQ would blame all of those errors on a technical glitch but it left a bitter taste for most traders. But even all that sloppiness isn’t why some newly-minted Facebook shareholders are suing the social media giant. They claim the fix was in.

As reported by Reuters, the lead underwriter for the IPO, Morgan Stanley, was provided with some pertinent information regarding the true nature of Facebook’s financials. Namely, they weren’t so hot. Coming upon the heels of GM backing out of a $10 million Facebook advertising campaign, this report apparently let the big players in on a dirty little secret - when it comes to generating dividends base on profits Facebook might just turn out the be the Emperor with no clothes. Suddenly that $100 billion valuation wasn’t looking so accurate.

Reuters went on to report that a few hours after Morgan Stanley got the news it was apparently shared with Goldman Sachs, JP Morgan and Bank of America. They all reduced their earnings outlook. When those numbers were publicized, the stock price took a hit and kept on sinking. The disgruntled shareholders claim this was a classic case of insider trading and they were the ones left holding onto a stock that dropped like a brick.

Naturally, the big brokers claim they are innocent of any wrongdoing. Are they right? At what point does it become insider trading?

 Were the people jumping on the Facebook bandwagon misinformed intentionally or did they merely buy into the hype only to be smacked by reality? Obviously, this will be an issue addressed by the courts. Meanwhile, the stock is still trading. Zuckerberg still became a billionaire (on paper), got married and went on a honeymoon.

And Facebook still has millions and millions of users. In the grand scheme of things, not much has really changed for those users.

Everyone is just waiting for the next move.

Where is Facebook Heading? What the Experts Are Saying

If you happen to be one of the lucky workers who started out at Facebook and were paid in company stock then congratulations! You are about to become a multimillionaire. That's because Facebook is going public. With the initial IPO, estimates are that Facebook could pull in a whopping $5 billion when the company stocks are put up for sale later this year. This is a business move that has many tongues wagging over the prospect of what lies ahead for Facebook and online marketing. Considering that Facebook currently has over 845 million registered users it's no wonder that they are thought to be the social media giant that is here to stay.

The Value of Facebook

As part of the IPO, Facebook had to open up the books and reveal exactly what has been going on "behind the curtain." What the financial records have shown is that of vast array of businesses, both large and small, are pouring increasing amounts of advertising money into Facebook to promote their goods and services. These advertisements can be targeted to specific demographics allowing for a more direct return on investment in terms of pay per click advertising.

Jos White, who is the cofounder of Notion Capital, recently discussed with Forbes online the value of Facebook as it heads into the future. “Valuation is all based on future growth and potential. The bulls will tell you that they will do more than $8 billion this year and continue 100% growth for some years to come, which is phenomenal for company of this size,” he commented. “The argument is that Facebook will be the advertising platform of the 21st century because of the size of its user base, the level of engagement and also the far reaching nature of the platform across its website and applications.”

The Reach of Facebook

Not only was the announcement of Facebook's IPO good for that company and its shareholders but it also provided a boost to the various other social networking sites and their stocks. This would indicate that when it comes to online marketing tapping into a social media network is crucial for many companies.

CEO and cofounder of Somo, Nick Hynes, also commented to Forbes online about Facebook's market potential. “Facebook has market dominance; it has reach, velocity and gorilla status. It seems to be unstoppable in terms of user acquisition,” Hynes said in the interview. "While country-specific social networks have been enduring in some areas, Facebook has overtaken market leaders in Poland, Germany and the Netherlands, to name just a few, and will soon be the most widely used network in Brazil."

Next Up For Facebook

Beyond the appeal of connecting with family and long-lost friends, Facebook also allows its users to engage in many online activities such as games and surveys. The games have been adapted to be played as part of the community. This is taking social networking and online marketing to an entirely new level as it introduces online gaming too many users who probably would never even consider these types of activities. This is how Facebook is creating an ever expanding universe of online social outreach and powerful online marketing programs.