Getting paid

Cassandra · #1 (**permalink**) 08-31-06, 09:48 AM

I'm about to incorporate my dog breeding business. Not because I expect to make a ton of money at it. But, from all my reading, it just seems ridiculous not to. I've been filling out the appropriate forms and some questions arose. Some of the following information is hypothetical.

I open my corporation with 1000 shares with a par value of $.01. I hold 600 shares for myself and reserve 400 for non-voting holders. (I forget what the appropriate term is.)

Now, just suppose that someone buys $2 worth of my stock. Under what circumstances does he ever end up getting any of that back? I mean, if it's an investment, he has to hope he's going to get paid for that one day, doesn't he?

Cassandra

FirstConsul · #2 (**permalink**) 08-31-06, 11:28 AM

Dividends, share buybacks, buyouts, appreciation...and... bankruptcy(if there's anything left after paying off debt) but being Cassandra, you needn't worry about that

efex77 · #3 (**permalink**) 08-31-06, 12:24 PM

Cassandra!

What race do u breed?
Wat a coincidence, I also started my dog breeding bussiness

I love the Beagles, so I started it

Wish u luck!

Cassandra · #4 (**permalink**) 08-31-06, 01:38 PM

HAHA FirstConsul. Naturally, I'd be aware WELL in advance of anything as dire as bankruptcy in my future.

(concentrating) "Ohhhhm..... (peering into future) Nope. No bankruptcy."

effex, I am breeding shih-tzu. Go and see! Cassandra's Kennel - Home

Beagles are fun, aren't they? But too noisy for apartment living. They love to hear themselves sing! Do you breed yours for hunting or as pets? They are popular hunting dogs here in Mississippi.

Cassandra

WallStGolfer31 · #5 (**permalink**) 08-31-06, 02:46 PM

Cassandra, if you ever find your corporation needing to go public to raise some more capital, issue debt (long or short term) for capital requirements, find your corporation needs to make any acquisitions, or even participate in a merger, my investment banking fees are very low compared to traditional Wall St. investment banks.

(by the way, in terms of issuing, my firm does only best efforts offerings lol

)

EDIT: In the dire case of bankruptcy, my firm also participates in restructuring planning and emersion, again these are the lowest fee's you'll find with the top Law Students working on your case in court (unless they have class or something)

MDZ · #6 (**permalink**) 08-31-06, 06:03 PM

The non-voting shares that you are talking about are called "Preferred Stock" Preferred stock holders give up their voting rights in exchange for a set dividend each year a dividend is issued. Preferred stock is usually sold at a value of $25, $50, or $100 each. For example, lets say I were to buy the 400 preferred shares for $100 each, with the agreement that each share will pay 5%. Next year, your company decides to pay out $3,000 total dollars as a divividend. I would get paid first and the amount would be $5 dollars per share ($100 x 5%) X 400 (my shares bought) = $2,000.00. That would leave $1,000 for your 600 shares.

If you had owned preferred stock rather than your common stock, you would have made $3,000.00 ($5 x 600 shares)

So pretty much, if you plan on paying yourself back for your investment some day, you will have to pay back whoever owns your preferred stock first. Now if you decided on a dividend payout of $10,000, I would still recieve my $2,000 and you would get the remaining $8,000.

This is for the usuall preferred stock, there is also cumulative preferred stock, convertible preferred stock, and callable preferred stock.

Cassandra · #7 (**permalink**) 08-31-06, 08:28 PM

WSG, you have a website? If I find myself in need of those things, I will call you first.

MDZ, would I pay out dividends as an alternative to paying taxes on profit? Or, are dividends those earnings that can be taxed twice? (As profit to the corporation and as income to the recipient)

Cassandra

MDZ · #8 (**permalink**) 08-31-06, 09:16 PM

Nope, all money that the corporation makes will be taxed as profit for the business. If the corporation decides to turn around and pay out money to the stock holders in the form of a dividend, the stock holders will have to claim the income on their 1040 just like standard money earned.

One thing that you might want to look into is becomming a subchapter S corporation. These operate in the sense that money earned flows directly to the stock holders income statement, so there is no double taxation. There are some restrictions to this, such as you have to have more than 1 but no more than 75 owners. ALL owners have to vote to select subchapter S corporation status. Also, the stock can't be publically traded (which I am guessing is not a problem) so you will be limited to how much money the 2-75 owners have. The rules vary from state to state, so asking an attorney some questions would be a real good idea.