How many authorized shares of common stock should I authorize when first forming my corporation?

TL;DR: While there is no one-size-fits-all answer, authorizing 10 million shares of common stock at incorporation is sufficient for most technology and life science start-ups.

Here are some key considerations to discuss with your attorneys when determining how many shares to authorize when first incorporating your start-up:

1. Standard Practices: Many start-ups opt to start with several million authorized shares, reserving a substantial portion (10-30 percent) for future issuances. Ten million authorized shares is a relatively standard number in the start-up community and provides ample shares for initial allocations to founders and for establishing a stock option pool. A company with an authorized share number that is significantly lower (e.g., 100) or higher (e.g., 100 billion) may seem strange to experienced investors and could result in the need to complete a standard or reverse stock split prior to VC investment.  
2. Future Ownership Structure: Consider your company’s ownership structure in the near term after incorporation. If you anticipate bringing on additional founders or expanding your executive team shortly after formation, ensure you authorize enough shares to accommodate these team members. Remember that the board of directors and stockholders can amend the company’s charter to authorize additional shares as your company grows and evolves. However, this process becomes more complicated as more owners are added to the company’s capitalization table. You should target authorizing enough shares at incorporation to get to the company’s first equity financing round.
3. Equity Incentives: If you plan to incentivize employees or contractors with stock options, it’s essential to have a validly approved equity incentive plan and sufficient authorized shares available under the plan. Offering equity can be a powerful tool for attracting and retaining top talent, particularly in the competitive tech and life sciences sectors.
4. Long-Term Flexibility: The number of authorized shares can vary significantly based on your business specifics and long-term vision. It’s advisable to consult with your start-up attorneys and accountant for tailored advice that aligns with your unique situation and funding strategy. They can help you evaluate your needs based on potential future plans and growth projections.

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