How Many Shares Should be Issued to Founders at Incorporation?

I typically advise issuing 50% to 80% of the authorized shares of Common Stock to the initial founders upon incorporation.

Thus, if the certificate of incorporation authorizes 10,000,000 shares of Common Stock, an aggregate of 5,000,000 to 8,000,000 share should be issued at incorporation.

If the startup plans to bring on additional founders in the very near future, or for some reason wants a large option pool, then that initial number should be closer to 50% than 80%.

While your startup can always authorize additional common stock (upon appropriate board and stockholder consent), keeping a good-sized reserve of unissued, but authorized shares means that you will not have to incur the transaction costs associated with increasing the authorized shares. In order to increase the authorized shares, your startup will have to file a certificate of amendment with the secretary of state which has filing fees associated with it.

3 Responses to “How Many Shares Should be Issued to Founders at Incorporation?”

  1. Raja January 31, 2014 at 9:39 pm #

    Hey Ryan,

    Great website. Could you comment some more on the rationale behind issuing a larger percentage (50-80%) of the authorized shares to founders rather than a smaller one like 20-30%?

    I recently incorporated a company and my first instinct was to issue a large percentage of the authorized shares to founders, as you suggest. Somewhere around 80% is where the founders expect our ownership to be prior to heading into Series A funding.

    However, after looking around the internet a bit, I see quite a few people suggesting to issue a much lower percentage initially, like 20-30%. They suggest room for the option pool and room to allow preferred shares to convert to common as reasoning for the lower initial issuance.

    If it matters, this is for a web startup. Thanks.

  2. Ryan Roberts February 1, 2014 at 4:05 pm #

    The key is to leave enough room that you can do additional things like authorize an option pool without having to go back to Delaware and increase the authorized common. Don’t worry about the preferred shares yet because you will just authorize the preferred and then increase the common at the round of financing. Thus, 20-80% could be right depending on how much additional common you plan to issue (prior to a financing). The key is to leave ample wiggle room.

    • Raja February 2, 2014 at 7:45 pm #

      I understand. Thanks!

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