A corporation has the ability to sell shares of the business as a way to raise money for the company. Selling shares of the business allows a corporation to finance the company’s business activities without incurring more debt. A company can issue common shares that allow the shareholder to vote on corporate issues and select the corporation’s board of directors. Also, a corporation may sell preferred shares of a corporation, which means the shareholder will receive his dividends before common shareholders if the company liquidates.
1. Confirm the number of shares the company plans to issue to shareholders. The number of shares will help determine the total selling price of the stock issuance. The total selling price will indicate the amount of cash generated by the stock issuance.
2. Verify the selling price per share of the company’s stock. A company may have $1 par value stock, which indicates the minimum selling price per share. Stock cannot be sold below par value, but it can be sold above par value. When a company sells stock above par value, the company recognizes additional paid-in capital on the sale of shares.
3. Multiply the number of shares issued by the selling price per share. Let’s say a company issues 10,000 shares at $10 per share. In this scenario, the company generates $100,000 cash as a result of selling business shares. If the company's stock has a $1 par value, then the company has additional paid-in capital of $90,000.