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How do we decide how many authorized shares we need?
How do we decide how many authorized shares we need?
Updated over a week ago

There is no right or wrong answer here. A new company should think about how many shares it wants to issue to the founders on incorporation and also include some room for growth.

A company will usually authorize more shares than it currently needs to issue. Try to anticipate how many shares you might issue to investors in future funding rounds and how may options to acquire shares you may grant to employees and advisors and authorize enough shares to cover these future issuances.

For most companies, the minimum authorized share capital is one share and there may not be a maximum number of shares that can be authorized and issued. Often companies will authorize thousands or even millions of shares (with a low value) as it is much more flexible than having only a small number of shares (with a higher value). It allows the company to more finely balance ownership proportions, as it can grant fractional interests (such as an 18.5% shareholding) without splitting shares. This makes it easier for shareholders to sell a portion of their shares and for the company to grant any shareholder a slightly greater share in the business. A company with more authorized shares also seems more substantial to prospective investors and option holders than a company with less share capital. A shareholder is likely to be happier to receive 5,000 shares rather than 5 shares for the same investment.

Authorizing shares doesn’t mean you have to grant them now or ever. It just makes it possible for the directors to issue them easily (without the need for a shareholder vote), and that can be done on any timeline. As the company scales up, you tend to increase the authorized share capital.

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