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Description of Securities
A company filing a registration statement with the SEC must describe the amount and characteristics of the stock it will sell. The two basic types of stock are known as common and preferred stock. Before a description of common and preferred stock is enumerated, the differences between authorized and unissued stock and issued and outstanding stock must be defined. Suppose each share of stock in a company is represented by a marble and the company is represented by a big jar. The authorized and unissued stock would represent the amount of marbles located inside the jar. Nobody has ownership rights to the stock. However, when the company decides to issue stock to officers, directors, and investors/shareholders, the marbles are removed from the jar and are now known as issued and outstanding stock. If a company is advised to hold 100,000,000 shares of authorized and unissued common shares, the company’s directors and investors could be concerned that such large holdings would decrease the value of the stock. However, it would not affect the stock price. The stock price is affected only by the amount of issued and outstanding shares sold: the amount of marbles that have already been removed from the jar. Common Stock Disclose to the SEC how many shares of common stock at what par value of $0.001 the company will issue and the number of shareholders which will hold the shares. Disclose voting and dividend rights and any provisions in the company’s articles of incorporation or by-laws that affect changes in control. Preferred Stock Authorizing preferred stock shares enables a company to have flexibility to raise money in the future. Preferred stocks may be issued in series with preferences by the Board of Directors without shareholder approval. Preferred stock may be issued with voting, dividend, liquidation and conversion rights. |
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