Authorized number of shares in C-corp
I am planning to setup a C-Corp and I don't really understand about the shares and other stuff...
a) How many authorized shares should I initially start with ?
b) What kind of shares should I start with ? (common stock , preferred stock etc...)?
c) How much should be the PAR value ?
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Incorporation Corporate Structure
3 Answers
Most of the time I start with 10 million for my clients.
Definitely just common, to start. Even if you can anticipate that preferred shares will be required (e.g., VC investment), there's no way that you can know today exactly which preferences will be appropriate.
Whether to have par value, and what it should be, depends on the state of formation.
For more details about the foregoing brief answers, please see How Many Shares Should My Corporation Authorize and Issue?.
Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.
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Dana, the link in your blog is little confusing. http://corp.delaware.gov/frtaxcalc.shtml. what are three different types a) Non-Stock for Profit b) Authorized Shares Method c) Assumed Par Value Capital Method. I am just starting a website and I choose C-corp because of my Visa rules & regulations. My main goal is to reduce tax as much as possible because my website is not generating money now. But I want to setup here because down the line I want to go for funding. In this situation if I incorporate a company with 10,000,000 shares at par-value $0.0001 in Delaware what will be my Tax? – User2351 14 years ago
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The minimum amount, $350. – Dana Shultz 14 years ago
My initial reaction to your question is that your probably forming the wrong type of company. Why? Well the answer to the questions a - B are come from the objectives and expected outcomes you have for raising equity. C I believe has something to do with a minimum amount that a state requires the stock to be worth but is the least important.
So an LLC is easier to setup, provides fairly good legal protection as long as you do the accounting correctly and probably fits what your objectives are.
A - Start with more authorized shares then you need so you can go for more then one round of funding but not so many as to scare away investors. This should be based on your funding needs, based also on the market size of the industry the company will be selling in and based on expected profits. Also have authorized shares set aside for employee stock options.
B - Common stock is the basic who owns the company so you need that. Prefered is equity stock that is really a perpetuity of debt (hybrid security). You'll want that setup when you bring in a venture so the funding comes through the prefered and it might be convertable into stock.
C - Look at the state requirements.
Luck
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LLC and S corp in my state are both trivial to create. – Tim J 14 years ago
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John, I only have the flexibility of creating C-Corp because I am a temporary visa in US but can setup a company i.e. only C-Corp and employ someone to run it. - So keeping that in mind please advice me the +ve and -ve in terms of C-corp. – User2351 14 years ago
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Is this based on Visa restrictions or restrictions on the llc. I'm not familiar with a resident restriction for the LLC. – John Bogrand 14 years ago
The number of shares depends highly on the state of incorporation and your line of business. Tech companies from Silicon Valley often use 10 million shares and form in Delaware, but this will make you pay more taxes, so if you're not a tech company planning to raise venture funding, this is likely not your situation.
California does not have a concept of par value so it doesn't make a difference for you. As for shares, you can create common now and issue a second class of preferred stock when and if you get venture funding. Most people who do pick par value make it very small, as Delaware requires that you actually pay par value for your stock.
General rule is go simpler unless you absolutely need it. You can then change it later when it becomes necessary due to a round of funding, or another change in company event.
