Capitalization for Corporations: Shares & Preferred Stock
Essentially, Minnesota corporations have two options to raise capital. The corporation can issue shares of the corporation stock or it can borrow money to provide startup capital.
Pursuant to Minnesota Statute § 302A.011, subd. 28 a share is “one of the units, however designated, into which the shareholders’ ownership interests in a corporation are divided.” Minnesota Business Corporation Act requires that every Minnesota corporation is required to disclose the total number of shares is authorized to issue in its articles of incorporation.
Common Shares
Under the Minnesota Business Corporation Act all shares are presumed to be common shares entitled to vote and are equal in all matters unless of course the corporations articles of incorporation state otherwise. Common shares have a par value of one cent per share, unless the articles specify a different par value, but solely for the purpose of a statute or rule imposing a tax or fee based on the corporation’s capitalization. Minn. Stat. § 302A.401.
Preferred Stock
Preferred stock are different from common shares of preferred stock shares generally means that they are different than common stock shares however any differences are outlined and created by the Board of Directors. Preferred stock is traded as one or more series or classes of stock and all shares of a particular series share the same attributes. Preferred stock can be established either by including the rights or preferences of a class or series of shares in the articles of incorporation or, subject to any restrictions in the articles, by a resolution of the board of directors approved by the affirmative vote required by section 302A.237. Minn. Stat. § 302A.401, subd. 3(a). Any amendment that establishes one or more classes or series of preferred stock must be submitted to the shareholders by a resolution approved by the board of directors or proposed by a shareholder or shareholders holding 3% or more of the voting power, and is adopted only upon the required shareholder approval. Minn. Stat. § 302A.135.
Preferred stock must also be disclosed to the Secretary of State setting forth the name of the corporation and the resolution that establish the rights and preferences of preferred stock unless the rights and preferences have already been established in articles of incorporation. Minn. Stat. § 302A.401, subd. 3. Preferred shares cannot be issued until the statement has been filed if the shares were not established in the original articles of incorporation, unless the shareholders received notice of the creation of those shares before issuance, in which case the statement may be filed within one year after issuance. this requirement can be of avoided if the shareholders have received notice the creation of the preferred stock. If that is the case then the preference statement can be filed at any time up to one year after the preferred stock is issued. Minn. Stat. § 302A, subd. 3(b). The filing of the statement of preferences is not considered an amendment to the articles of incorporation for purposes of sections 302A.135, 302A.137, and 302A.471.
