Remember civics class, when your teacher would drone on about the U.S. constitution? Well, America isn't the only thing with a founding document that lays out its general governing structure. Corporations have the same kind of foundational paperwork.
These docs are called articles of incorporation and they lay out the basic outline of how the company is set up.
One of the items included in these basic documents is the authorized share capital. This designates the amount of stock that a company can create. The term encompasses all the ownership shares that can exist.
The authorized share capital creates the company's pool of stock that can then get distributed as needed. From there, management can issue shares for founders, shares to sell in order to raise capital, shares to make acquisitions or shares to use as stock incentives for employees - basically for any other purpose that seems prudent.
Related or Semi-related Video
Finance: How Do You Become Incorporated?48 Views
Find it a la shmoop how do you become incorporated
Well the first question you want to figure out is
why do you want to become incorporated in the first
place Well here's the sitch if you have an ice
cream shop that you own personally you've got twenty grand
in a bank account in eat yellow snow dot com
it's the name of your ice cream shop you haven't
been successful yet you personally own your own home You
have a fully paid for car and a really nice
xbox set up some stooge slips on a banana peel
in your store and would boob sues you for negligent
banana peel Pick up the student has great lawyer draws
an angry jury and you lose big you are one
hundred grand to cover the stooges pain and suffering well
because you didn't watch this video and listen to shmoop
you not only lose the twenty grand in your company's
bank account but you have to sell your house to
pay off the lawsuit Well if you're lucky you'll keep
your xbox It all depends on whether you net after
your mortgage from the house sale enough money to pay
Off the stooge in his lawyer Ah if only you
had incorporated Well if you had all you would've owed
was the twenty grand from your company bank account You
could have closed up shop and gone into surfboard waxing
or you know whatever but you'd still have your home
with the nice xbox set up So how do you
make this magic happen Well the process used to cost
thousands of dollars in require a real lawyer Today Most
people just go to legalzoom dot com fill out a
few forms about three hundred bucks and voila they're done
They're officially incorporated as an llc limited liability corporation Well
most people officially registered their companies in delaware because that
state offers extremely cheap taxes easy filing systems and it's
set up to accommodate corporate filings at scale So you
as the new filer get the benefit of walmart pricing
for the process And along with that wal mart pricing
comes the freedom to wear sweat pants in public Yeah
you just keep doing you and the limit your liability
It's a smart thing to do L l c three
letters
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