Expert: Arthur Naman - 8/19/2009

Question
My brothers and I have started up a C corporation, with 10,000 shares of stock available.  380 shares have been allocated among us.  We are looking at getting an investor now for start up money.  We want to fund this by giving them shares of non-voting stock. Two questions.  Can we declare different dividends for our investor than the board, based on two types of stock?  We want to give the investor approximately 1% of the net profits annually as compensation. We do not want to declare dividends for the board as we want to put more money back into the company.

Second question - what's the best way to show the investor their potential on their investment based on dividend payout.

Answer
There maybe state laws dealing with this. You can, of course, have two classes of stock with different dividend rates.

Your phrase "the board" does not mean the owners per se as other people can be on the board in addition to the owners. So, it is not the board who you do not want to receive dividends, but rather you and your brother, the owners of the voting stock.

I would strongly recommend discussing this with a corporate attorney in your state.

You can probably accomplish what you want in the brief scenario provided.