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“Capitalization” essentially refers to funding your corporation. In essence, you are providing substance to the entity in the form of money or property. Typically, the funding process works in two ways.
You must own stock in a corporation to be considered a shareholder. You are already familiar with this concept if you trade on the stock market. For instance, assume you bought stock in Sirius Radio in anticipation of Howard Stern moving to the station. You purchased stock through a brokerage or retirement vehicle by exchanging money for shares. Technically, you are a shareholder in the corporation. Your own corporation is no different.
The fact that you paid money to have a corporation formed does not make you a shareholder. You must exchange property, cash, or services to obtain stock from the entity. Only then are you a shareholder in the entity. This is more easily explained with an example.
Assume I start a corporation for the purpose of providing consulting services to other businesses. The corporation is formed with 10,000 shares and I am going to be the sole shareholder. I have cash and certain assets that I am going to use as part of the business. I decide to exchange $3,000, a copier, fax machine and computer equipment for stock in the entity. This exchange should be reduced to writing but will constitute the capitalization of the corporation.
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