How many shares should a new company authorize?

A question from misc.entrepreneurs.moderated:

I have read that typically a million shares are issued initially for an idea only corporation, as a rule of thumb. If the business is well beyond the idea only stage and has products ready to be shipped, how much shares should the business issue?

To me though, as long as the percentage of the business that the shares represent is the same, the number of shares is immaterial. Are there any implications that I am missing?

How many shares should the business authorize (not necessarily issue)? As many as necessary to accommodate investors in all foreseeable rounds of financing.

Are there any implications you are missing? Yes; the future IPO. NASDAQ regulations prohibit offering shares in an IPO for less than $5 per share; at the same time, offering shares at above $100 per share is often thought to be impractical (shares are traded in blocks of 100, so offering shares at above $100 per share is thought to alienate small investors who cannot afford to open $10,000 positions). Since most IPOs comfortably fall within $5-100 million range, million shares appears to be a very good number.

Leave a Reply

Your email address will not be published. Required fields are marked *