How to Issue Corporate Stock

Step 1: Confirm Authorized Shares Are Available

Before issuing any stock, confirm the corporation has enough authorized shares remaining under its articles of incorporation to cover the issuance. If it doesn't, the articles have to be amended to increase authorized shares first; you can't issue more stock than the articles currently allow. See our guide on authorized shares vs. issued shares if you're unsure of the distinction.

Step 2: Board Resolution Approving the Issuance

The board of directors formally approves a stock issuance by resolution, naming the recipient, the number and class of shares, and the consideration the recipient will pay. This resolution is the corporation's internal record that the issuance was properly authorized, and it's typically adopted at a board meeting or by written consent.

Step 3: Determine the Consideration

Stock can generally be issued in exchange for cash, property, or services already performed for the corporation. Most state corporation statutes require the board to determine that the consideration received is adequate, and some states still apply a par value rule, meaning stock can't be issued for less than its stated par value. Services to be performed in the future are treated differently by some states' statutes than services already rendered, so confirm your specific state's rule before issuing stock for future services.

Step 4: Check Securities Law Exemptions

Issuing stock is technically a securities transaction, and the Securities Act of 1933 requires every offer and sale of securities to be registered with the SEC or to qualify for an exemption. Most issuances to founders and a small group of early investors rely on an exemption, commonly the Section 4(a)(2) private placement exemption or the Regulation D safe harbors under Rule 506(b) or 506(c), which let a company raise money without SEC registration as long as it follows specific rules, such as limits on general solicitation and the number of non-accredited investors. A company relying on Rule 506(b) or 506(c) still has to file a notice, Form D, with the SEC within 15 days of the first sale.

Step 5: Issue Stock Certificates or Book-Entry Shares

Once approved, the corporation issues the stock either as a physical certificate, signed by an authorized officer, or in book-entry form, an electronic record with no physical certificate, which many startups and cap table platforms use by default. Either form is generally valid as long as your state and bylaws allow it and the stock ledger properly reflects the issuance.

Step 6: Record the Issuance in the Stock Ledger

Every issuance has to be recorded in the corporation's stock ledger: the recipient's name and address, the number and class of shares, the certificate number if used, the date, and the consideration received. See our guide on creating a corporate stock ledger for the full recordkeeping requirements.

Step 7: Consider a Section 83(b) Election for Restricted Stock

If the stock is subject to vesting, meaning the corporation can reclaim it if the recipient leaves before a set schedule, the recipient should consider filing a Section 83(b) election with the IRS. This election lets them include the stock's value in income now, while it's presumably worth very little, rather than as it vests later and is potentially worth much more. Per the IRS, this election must be filed no later than 30 days after the stock is transferred, now made on Form 15620, with no extensions or exceptions for a late filing.

Par Value Rules Still Apply in Some States

Some states require stock to be issued for at least its stated par value, and issuing stock below that value can create liability for the recipient or the board. Setting a very low par value (a penny or a fraction of a cent) when authorizing shares is a common way founders avoid this becoming a practical constraint.

Restricted Stock and Vesting Need Their Own Documentation

If stock is subject to vesting or a repurchase right, document those terms in a separate restricted stock purchase agreement, not just the board resolution approving the issuance. The vesting schedule and repurchase terms are what make the Section 83(b) election relevant in the first place.

Missing the 83(b) Election Deadline Is Permanent

Because the 30-day deadline has no extensions and courts have consistently refused to excuse late filings, calendar it the day the stock is transferred, not the day someone remembers to ask about it. A missed election generally can't be fixed after the fact.

This Is Not Legal or Tax Advice

Which securities exemption applies to your specific issuance, whether your state's par value rule affects your transaction, and whether an 83(b) election makes sense for a particular recipient depend on the facts. Talk to a business attorney before issuing stock and a tax professional before filing or skipping a Section 83(b) election.