Business Development

How many shares should be authorized when incorporating a business?

ivan ner HR Manager at VR

October 2nd, 2016

Not very experience with this subject. I have also read plenty of suggestions and opinions during my research but nothing solid. What do you think?

MaxBlox/Founder Institute Director, Chennai Area at The Founder Institute

October 3rd, 2016

For the USA, i recommend the following: Authorize 10 Million Shares. Allocate 15-20% of shares for employees and advisors. Issue the rest to co-founders. Regular employees can be issued about 40,000 shares. Advisors should get about 10,000 shares.  VP level should get between 100,000 and 300,000 shares. All shares should be on a vesting basis.
Of course every situation is unique.

Tom DiClemente Management Consulting | Interim CEO/COO | Coach

October 3rd, 2016

I recommend not authorizing less than 100,000 shares. If you do much less, you will need to refile for a higher authorization soon, unless you're going to own 100% of the shares.

In my own startups, I've typically authorized 300,000 and issued 100,000 among the founders and key people.

Higher levels, like in the millions, are not a problem.

But, when you receive outside funding then you may be faced with the same thing I do as an investor which we've found good practice. That is to set up an agreed upon option pool and refile the authorization to equal issued and when-issued shares plus the option pool, with no overhead above the capitalization agreed upon in the funding.

Lawrence Graves IP/Int'l/M&A lawyer, Coolidge & Graves PLLC

October 3rd, 2016

Depends upon what you are doing with the shares, how many participants, etc.  For a basic corp, I authorize 100 or 1000, and issue 10% so as to preserve authorized-but-unissued shares for subsequent participants.  Including blank-check preferred in the Articles can save a need for amending (not a big filing fee but you want to save avoidable costs when possible).  There are significant costs for authorizing huge numbers so don't jump into millions of shares until or unless some VC insists on it (and effectively pays for it in their investment).  Best wishes,
LDWG

Arthur Lipper Chairman of British Far East Holdings Ltd.

October 3rd, 2016

There number of shares to be authorized should reflect the plans and needs of the enterprise. The number of authorized shares will always be much larger than the outstanding shares, which have been issued for either cash or service. You need a local to you attorney for both mechanics of incorporation and advice. Arthur

Martin Omansky Independent Venture Capital & Private Equity Professional

October 3rd, 2016

Most jurisdictions include a number of authorized shares as part of the incorporation package. Additional authorized shares usually can be purchased at nominal cost. Sent from my iPhone

Karen Rands Compassionate Capitalist & Venture Catalyst

November 2nd, 2016

I recommend companies think through their longterm capital strategy...capital they will need as they grow, coupled with revenue generated and the debt they may qualify for at different stages, so they can plan their stages of capital raises and guessing what their valuation will be at each stages. They need to have sufficient stock authorized at the start, and just issue the # needed for each stage. If they think they may go public or ultimately use the psuedo public offering or a RegA+ then they they need to have sufficient shares to sell to 2000 investors down stream. If they plan to go high-tech with traditional angel investors, Venture Capital, and then get sold, the quanitity of shares is not as critical. A lot of states default to 100,000 shares at a start, and that creates a host of problems because entrepreneurs will end up charging thousands of dollars a share and this just becomes a marketing nightmare to the investors.... Mental perception is that they will make money on a share that starts at 25cents vs one that starts at $2500 with the 'promise' that they will restructure the company in the future and authorize new shares and do a split or something..... note too that the latter example triggers a BUNCH of legal fees every time you have to restructure to make more shares available, and get the shareholders to agree etc, vs just plan ahead and make sure there are no anti-dilution clauses in your PPM. Hope that helps. Karen Rands http://kugarand.com twitter: @karen_rands Thanks, Karen Rands Kugarand Capital Holdings, LLC (LAUNCHfn & NNOAI) 470-210-4946 Connect with me on TWITTER @karen_rands Connect on Facebook : http://facebook.com/BusinessInvestorGrow Connect on LINKEDin http://linkedin.com/in/karenrands/ Entrepreneurs Schedule an initial consultation with LAUNCHfn Investors Check out the NEW National Network of Angel Investors - @nnoai Schedule a time to talk: See my Calendar