Forming a Business Corporation in New York State- Stock Structure Question

[kyleqi]

Helloooo everyone,

I have a question and hopefully this community can help me out.

Background:
The standard New York incorporation generally provides for 200 non par value shares, which is far beneath the needs of our company that chose the corporate route (IPO, multiple traunches of capital, stock options, etc.)

Indeed, the 200 share threshold is only useful for â closed corporations (i.e., private corporations with a handful of shareholders, such as the family company). In a scenario that requires the grant of stock to a variety of founders, consultants, angels, and other parties, it is immediately clear that 200 shares will not suffice for our company. In such a scenario, the capital stock supply will have to increase to meet the various early stage growth demands.

Further Info:
New York State imposes a share tax on the issuance of new shares.

New York State imposes a share tax on the issuance of non par value shares that can be as high as $.05/share. So if there is a new company that was formed with the standard 200 share form, but now needs 10,000,000 shares to satisfy its needs, it will have to file a certificate of amendment with the New York State Department, enlarging its capital stock pool.

Although this seems simple enough, if the share pool was increased from 200 non par value shares (non par value means there is no minimum price at which the corporation is obligated to sell the stock) to NPV 10,000,000 shares, the corporation would be hit with a share tax, under section 180 of the New York Tax Law, of $.05/share minus the original share tax paid upon formation of the corporation (which in this case means $500,000 less $10 = $499,990). Obviously, that is not a palatable situation for any company, mature or otherwise. One has to be aware of this tax to properly structure their capital stock pool accordingly.

Main Question:
New York Tax Law Section 180- Organization Tax; Taxes on Changes of Capital
New York Tax Law Section 180 - Organization Tax; Taxes On Changes Of Capital. - New York Attorney Resources - New York Laws

An alternative is to issue stock with a minimal par value. Hence, in the above example, the corporation can opt to issue 10,000,000 shares of stock with a par value of $.001/share. This will only make them liable for a $10.00 tax under section 180.

Is this a good idea or otherwise what would you suggest?

Thank You All!!