In order to incorporate in Delaware, you must first determine how many shares your company should authorized upon formation. You should really do your research here and try to authorize as many shares as you will need in the reasonably foreseeable future. In addition to reading this article, talk to VCs, startup lawyers, and other startup founders to understand the different combinations of issuances that will affect the number of authorized shares at the incorporation stage before you make your decision. You should also speak with a tax advisor if you have any questions about the tax consequences of stock issuance.

Keep in mind that there’s no requirement for any specific number of shares and, from a mathematical perspective, 1 share could have the same value as 100,000 shares. On the other hand, when you issue shares to any individual, 100,000 shares may sound more attractive than a single share.

What are authorized shares?

Authorize shares are exactly what they suggest – the shares are authorized to be issued but not outstanding. Shares can be authorized (reserved and not issued) or outstanding (issued). Authorizing “x” number of shares doesn’t mean that they will all be issued at once. If you don’t authorize enough shares at the formation stage in your certificate of incorporation, you may always file an amendment to your articles with the relevant state office with shareholder approval and by paying additional filing fees. It’s better to err slight on the side of authorizing slightly more than you think you’ll need in the reasonably foreseeable future. For startups, 10 million to 20 million authorized shares is the norm.

Issuing the Authorized Shares

If 10 million shares are authorized upon incorporation, you may, but need not issue 10 million shares in total. As mentioned above, you may always make an amendment to the articles to authorize more shares at a later date. What’s more important is the number of outstanding shares. It is not uncommon for approximately 40%-80% of the unauthorized shares to be outstanding and issued to founders at the outset, with the remaining shares allocated to future founders, investors, and employees through incentive stock options plans. In general, it’s important to leave some headroom (approximately 20%) for stock you may reasonably foresee will need to be issued at a later date.

As always, you should consult with a startup lawyer if you have any questions about authorizing and issuing shares in your particular situation.

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