How many shares should be authorized in the certificate of incorporation?

TLDR: 10 million to 15 million is typical.

A corporation can be formed with as little as one authorized share of stock. However, if you want to be able to bring on co-founders, hire employees, consultants, and advisors and incentivize them with options, and issue stock to third parties such as universities (in connection with a potential license), and accelerators and incubators (in connection with participation in such programs), you should think about how many shares you might need to accomplish all of these goals and authorize that number upfront.

We recommend that start-ups authorize a number of shares that allow the company to allocate stock or stock options in very fine increments. Doing so gives the company room to quickly hire new employees and scale the business. This usually means authorizing a number of shares in the millions. There is also a psychological element to authorizing shares in the millions.

For example, if person A owns one share out of five issued and outstanding shares of a corporation and person B owns 2,000,000 shares out of 10,000,000 issued and outstanding shares of a corporation, both person A and person B own 20 percent of their respective companies, but person B’s stockholdings look a lot more impressive!

An example of a typical start-up capitalization table might look like this:

• Total Authorized Shares: 15,000,000 shares of common stock
• Issued to Founder 1: 4,700,000 shares of common stock (47 percent fully diluted)
• Issued to Founder 2: 3,700,000 shares of common stock (37 percent fully diluted)
• Issued to Accelerator: 600,000 shares of common stock (six percent fully diluted)
• Reserved for Equity Incentive Plan: 1,000,000 shares of common stock (10 percent fully diluted)

In the example above, we have included an extra 5,000,000 shares of authorized but unissued stock. Notice that these authorized but unissued shares don’t count toward the fully diluted percentages. The extra shares can remain unused, or they can be used in the future to bring on an additional co-founder or to add to the equity incentive plan reserve without needing to amend the company’s charter to authorize additional shares. Including a small buffer of extra authorized shares at the start is handy for start-up companies because amending a corporation’s charter generally results in filing fees and some legal expense.

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