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I am setting up a corporation. How do I decide how many shares of stock to authorize?
In theory, the number is arbitrary. A corporation with three shareholders could have three authorized shares or millions of authorized shares. Typical numbers are 100,000, 1 million and 10 million. For a restaurant with two owners, who each plan to invest $100,000, 100,000 shares of authorized common stock would be sufficient to issue 25,000 shares to each owner at a price of $4.00 per share while retaining 50,000 authorized shares in case the corporation needs to raise additional capital in the future. Ten thousand authorized shares would work equally well--the share price would be $40.00. For an ambitious start-up, 10 million shares could be the right number. The company might issue forty percent of the authorized shares to founders (4 million) for an initial investment of $40,000. The initial share price would be $0.01. Some founders like large numbers of shares in order to provide for grants of employees stock options in large numbers. Savvy employees know that there is no difference between 100,000 shares worth 0.01 and 10,000 shares worth $0.10. Remember, you generally want to leave a significant percentage of authorized shares unissued in case the need for additional capital arises in the future.