What are the consequences of not issuing any shares?
Having shareholders is a critical aspect of forming a corporation and taking advantage of the limited liability protections it offers. If a company is operating its business without shareholders, there is a possibility that those actions could be called into question or invalidated.
Further, once a corporation is fully formed, it will need to open a corporate bank account to separate its financial activities from the founding team’s personal finances. Banks are legally required to verify substantial shareholders in the corporation before opening the corporate account. Not having shareholders may block a corporation from establishing a bank account.
Finally, an important part of the fundraising process is getting through “due diligence.” Due diligence refers to investors carefully checking the details of any claim made by your company. The longer a company operates without shareholders, the more likely it is that investors will raise serious concerns about the corporation and will generally not invest until the corporation rectifies any issues. Further, addressing concerns at this stage in the investment process may cost the corporation considerable time and legal costs.
Last updated on April 2, 2019