I want to incorporate a new company and authorize 10MM shares. I also need $50,000 to get started. I am considering inviting friends and relatives to invest, and issue them shares. I want to own 50% of the company and I also want to reserve 4MM shares in the company to sell later - because I will need to raise an additional $1MM to expand the business globally later.
Will it be fair to allocate the remaining 1MM shares among the people who invest the $50k now? What should I do instead.
The number of shares you give to your investors depends on how much of the company they are buying.
For example, if you issue 1,000,000 shares for yourself and 1,000,000 shares for your investors, and the investors put in $50,000, then the company valuation is $100,000 and the investors own 50% of the company while you own 50%.
The number of shares that is authorized is completely irrelevant to the calculation. Only issued shares matter. Any shares which are authorized but not issued are kept "in the company treasury" which means that they are owned by the company, which, in turn, is owned by the people who have issued shares. That means that they do not affect the split in ownership of the company... only issued shares determines the split in ownership.
It would be fair if they are happy ending up with 10% of the company at the end. Which I would not be.
With a capital requirement of 1 million you will likely NOT end up owning 50% of the company at the end. Sorry.