Common Shares v. Preferred Stock

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 presumed value of one cent per share unless otherwise stated in articles of incorporation. 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 by an amendment to the articles of incorporation. Minn. Stat. § 302A.401, subd. 3(a). Any amendments that establishes one or more classes or series of preferred stock requires an approval of the board of directors or a proposal by a shareholder of shareholders holding 3% of the voting power of the shares and approval of the shareholders. 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 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 an amendment to the articles of incorporation.

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