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Big news for small companies.

Many small business owners wish to incorporate and/or sell stock in their companies, but the expense and time required to comply with standard regulations deter them. Montana legislation includes a program that facilitates incorporation and another that allows for stock issues with far fewer legal restrictions. To be eligible for either program, certain qualifications must be met. The programs and the qualifications are described below.

Incorporating a Business

The advantages of incorporating a business are well known. A business shareholder is not liable for more than his or her investment in a corporation. Creditors cannot seek individuals' assets for repayment of corporate liabilities (although financial institutions may require personal guarantees behind a corporate loan.) Incorporation usually opens channels for raising larger amounts of money than is possible with a partnership.

One traditional disadvantage of incorporation for a small business is the amount of government regulation imposed on a corporation. Even privately held corporations are required to have a board of directors, conduct annual meetings, and keep minutes of those meetings.

A modestly-sized company in Montana should have a board of directors, and an annual meeting is a good idea. For small Montana companies, however, they are stumbling blocks to incorporation. The Montana Legislature passed the "Montana Close Corporation Act" in 1987 to allow small companies to easily incorporate. Companies that incorporate under this act are considered "closely held."

A closely held corporation must consist of twenty-five or fewer shareholders. There need not be a board of directors, nor does an annual meeting need to take place. An individual may hold several or all of the offices of the corporation. The filing fee is the same for a "regular" corporation-$70.

The advantage of establishing a closely held company is this; For the small Montana company, doing so eliminates most of the red tape of boards of directors, annual meetings, etc., but still provides the liability protection that a "regular" corporation affords. For those other than the smallest Montana companies, these matters are not just "red tape," however, and such firms should operate in a more formal manner. The closely held status is of little advantage for more professionally managed firms.

Forms for incorporation are available from:
 Montana Secretary of State
 State Capitol
 Helena, MT 59620
 (406) 444-3665

Upon request, this office can send copies of Montana Code Annotated, Title 35-Corporations, Partnerships, and Associations. The booklet discusses many other legal issues of a closely held corporation.

Raising Money Through Stock issue

One advantage of doing business as a corporation is the ability to raise capital. Public stock offerings are rare in Montana. Fewer than ten Montana companies have completed successful initial public offerings (IPOs), including Big Sky Airlines, Ribi Immunochem in Hamilton, United Tote in Shepherd, and Montana Naturals in Arlee. Public stock offerings are expensive and leave a company with considerable government reporting requirements. Few companies can interest a stock underwriter in taking their firms "public."

An alternative to an IPO is a private placement. If you conform to the Securities and Exchange Commission's (SEC) Regulation D, you are freed from its enormous reporting requirements. What you are not freed from in a private placement is legal expenses. An attorney plays a critical role in putting together a private placement; therefore, the fees can be considerable.

There is another alternative. The Montana Investment Capital Exemption (MICE) allows companies seeking $500,000 or less from fewer than forty people to issue stock without needing to conform to all of the requirements of the Uniform Securities Act. Securities officers in the Montana Securities Department state that the stock issue can usually be handled without, or with minimum involvement of, an attorney.

Some of the details of the MICE program are worth noting here. First, the issuing company sets a maximum amount of money to be raised ($500,000 or less). If less than 75 percent of that is raised during a six-month period, all funds must be returned to investors. Investors are limited to a maximum investment based on their personal financial situation. Under the program, persons may not invest more than the greater of:

* $15,000

* 25 percent of their annual income

* 25 percent of their net worth

There are other restrictions and guidelines, which can be obtained by contacting:
 Montana Securities Department
 P.O. Box 4009
 Helena, MT 59604

To issue stock tinder the MICE program, you need to complete a twenty-five page disclosure form and file it, along with a $200 filing fee, with the Montana Securities Department. You must describe the anticipated use of funds, past company financial records, assets of the company, the management team and other key personnel, current shareholders in the corporation and their percentage ownership, and other information. Part of what you are asked to supply is much of the information included in a typical business plan- nature of the industry, company products, marketing plans, financial projections, etc.

Although the purpose of this program is to reduce your reliance on an attorney and the high fees associated with a private placement, you would be wise to consult professionals in filling out the forms, including an accountant, attorney, and/or consultant skilled in such matters.

Since program inception, between twenty and thirty companies have successfully filed applications under the MICE program. Approximately five have been successful in raising the required 75 percent of total funds sought that allows them to use the money raised. Businesses have found it difficult to sell the stock that has been authorized.


The Montana Close Corporation Act allows small Montana companies to incorporate without having to form a board of directors or conduct annual meetings. One person can fill several or all offices of the corporation. This affords them the advantages of incorporation without the accompanying red tape.

The Montana Investment Capital Exemption program allows a company to conduct a private placement without having to pay large attorney fees. This allows it to seek money in arenas from which it was previously deterred.
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Title Annotation:Montana legislature encourages small business development
Author:Larson, Paul
Publication:Montana Business Quarterly
Date:Sep 22, 1990
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