A split share corporation is a type of business entity that is designed to remain in existence for only a certain amount of time, with the goal being to generate wealth by securing investments that help to support the corporation in issuing a balanced amount of common and preferred shares of stock. The selection of investments chosen by the corporation will depend on the provision found in the company’s bylaws and other foundational documents, but will usually include the ability to invest in other companies that routinely pay out dividends to their shareholders. This in turn sets the stage to pay dividends to the shareholders of the split share corporation out of those returns, ultimately buying those shares back when the owners of the corporation choose to dissolve the entity.
The concept of the split share corporation rests on the fact that the strategy allows investors to generate returns based on investing in a number of other opportunities, then sharing or splitting those returns among all the parties concerned. Along with purchasing stock issued by other companies, a split share corporation may also purchase other types of investments that are likely to generate a steady flow of return, including mortgage backed securities and bond issues. As long as the investment is capable of providing an adequate return for the amount of the investment, and that investment type is in line with the bylaws of the corporation, the opportunity can be considered for purchase.
In order to create the best possible balance, a split share corporation will usually issue both common and preferred shares to its investors. The funds that are collected from the purchase of those shares can then be used to acquire investments that generate interest income or dividends for the corporation. It is from those returns that the corporation honors the obligation to issue dividends to its investors on a recurring basis. In most cases, the dividends paid to the investors of the split share corporation are based on a percentage of the returns received by the business, making it possible for the corporation’s owners to retain part of those returns and gradually increase the wealth of the operation.
The success of a split share corporation rests on two primary achievements. The corporation must present a viable business model with sufficient potential to attract the attention of investors for the initial and other public offerings of common and preferred shares. In addition, the owners of the corporation must evaluate and choose the best possible investments possible, ensuring a steady stream of returns that can sustain the operation of the corporation, provide investors with dividend payments, and allow the owners to also realize some type of return on their investment in the split share arrangement.