How Many Shares to Authorize

How many shares to authorize might seem like a trivial matter, and it can be but there are costs. The answer to the question is complicated because it depends on the Jurisdiction. Standard practice when it comes to questions like this is to tell you Delaware law and then have you look on your own for the law of the state you are in. We recommend you start in Delaware in the first place.

There are two issues to balance when deciding how many shares to authorize. One is a cost issue, because Delaware charges tax based on number of authorized shares, though there is an alternative method to calculate tax owed. The other issue is a time issue, which is also a cost issue, when you need to amend your articles of incorporation to increase the number of authorized shares because you have employees, investors, advisers, etc.

You want to authorize enough shares that you are not always amending your articles of incorporation, but you have to be aware of the costs. However, with the alternative calculation method its not all that bad.

The Delaware government actually has a lot of good information on this issue.

Some quick guidance is that 1M shares is probably too low, and 50M is probably too high for a startup. You want to have enough shares that you can be surgical when you are giving them out. For those thinking about share price, it is Value over Outstanding Shares that gives a share price, whether Market or Enterprise.