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Startup Shares | Authorized Shares | How many?

These are very common questions from our clients that are in the process of either starting their company or looking for advice on share(s), structure, and compensation in equity. 

What are authorized shares?

Part of the Incorporation process is filing a Certification of Incorporation with the Secretary of State. In this document, companies list the number of shares that they would like to start with. Typically, this number is low between 10-20 million; enough to address Startup's needs for 6 months to 2 years. Timelines are unimportant here. As we have seen and experienced, Startup arena is wild and full of surprises. Some companies gain traction and experience growth quicker than others; changes are quick in such companies. The reason for this digression is that if you are experience fast growth or are in a fast growth industry, things may have to be done a little differently. For one, Instead of starting with just a single class of stock, as most Startup's do, you may want to consider multiple classes of stocks. 

How many shares should a Startup authorize?

For a typical Startup, we recommend 20 Million shares. This amount is usually enough to carry on with daily needs, hire employees, seek initial investment. To be honest, the number of shares authorized is not important, but you still need enough of it to pass around. If your company is only authorizing 10,000 shares, there might not be enough to go around. Though you can always add to the pool, but you want to minimize such administrative tasks as much as possible in the initial stages.
​

The number of shares authorized will not affect the overall value of the company. Investors use a formula to value your company, and the number of shares does not make a difference to the valuation, it only affects the value of each share at that point in time. Remember, Board of Directors can authorize additional shares at any time in the future without investor approval.

Startup's have options when it comes to authorizing shares, series and allocation. I highly recommend you flush out your concerns and discuss your options with an attorney.

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  • Drason Law Firm
  • Practice Areas
    • Individual Legal Services
    • Business/Corporate Law >
      • How can we help your Company?
      • Benefits of Incorporating
      • Franchise Purchases | Agreements
      • Incorporating | S-Corp | C-Corp | LLC >
        • Bylaws
        • LLC Operating Agreement
        • Independent Contractor | Incorporation Benefits
      • Social Purpose Corporation (Previously: Flexible Purpose Corporation)
      • Converting Corporation to LLC | Converting LLC to Corporation
      • Professional Corporations
      • Negotiations | Business & Commercial
      • Partnerships | Partnership Agreements
      • Business Dissolution
      • Dispute Resolution | Disagreement
      • Buy-Sell Agreements
    • Small Businesses >
      • Small Business Contract Lawyers
    • Contracts >
      • Software Agreements
      • SaaS Agreements (Software as a Service)
      • Software Agreement Disputes
      • Contract Attorneys
      • Contract Breach & Disputes
      • Contract Litigation
      • Contract Review Service
      • Small Business Contract Lawyers
      • Negotiations | Business & Commercial
      • Commercial Lease
      • Buy-Sell Agreements
      • Business Purchases and Sale Agreements
    • Litigation | Lawsuits >
      • Business Litigation
      • Fraud Litigation
      • Contract Litigation
      • Civil Litigation
      • Personal Injury | Auto-Accidents >
        • Auto Accident Injury
        • Slip & Fall Injury
        • Construction Injury
        • Pedestrian Injury
    • Arbitration >
      • Arbitration Lawyer | Arbitration Process
    • Startups >
      • Why should StartUps Hire their own Lawyers
      • Founder | Co-Founders Agreement
      • Shareholder Agreement
      • C-Corp | Venture Capital
      • Startup Stocks | Authorized Shares
      • Convertible Equity
    • Tax Law >
      • 1031 Exchange Help
      • Offer in Compromise (IRS Tax Liabilty Settlement)
      • Removing a Bank Levy by the IRS
      • Hotel/Motel Tax Lawyer
      • Sales Tax Appeal | California Sales Tax Appeal
  • Contact Us
    • Phone Consultation
    • Book an Appointment
  • Blog
    • California Codes