Hello everyone! Just signed up :)
I run a software company which is developing an exciting product. I have completely bootstrapped it so far with personal money for the entire 1st year. I now need to raise funds for the next phase of development.
I have a basic question about share holding which I am a bit confused about. When we incorporated the company, my accountant advised me to transfer in an amount of 1,000 to the company and issued me 1,000 shares in the company to start it. Since then, I have transferred in larger amounts of money from my personal account to the company account. My accountant said the company should issue me shares against the paid amounts too.
Now suppose I want to bring in an investor who is willing to invest 50,000 in the company for say a 10% stake, how does this work? So if I`ve put up a total amount of 100,000 for 100,000 shares, in order to collect 50,000 while giving the investor a 10% stake, the company would issue the new investor 11,111 shares at 4.5 each so that the new investor will have 11,111 out of 111,111 shares (10%).
Is this typically how it works? Does the denomination or number of shares I own have anything to do with giving a stake? When I asked my accountant about this, he said "we can manage it later any way we like", which was not a very satisfactory answer!