How do I set the share capital of a company and the type of shares to allocate?


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I intend to set up an IT company. As a one person startup, how do I determine what share capital the company should have? It can be $1, $1,000 or $100,000. Then, the shares can be ordinary or preferred shares. Given that I may need to rope in investors in the future, how do I decide these parameters when registering for the company?

Shares Capital Startup

asked Mar 21 '14 at 10:53
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Wayne
6 points

1 Answer


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If you're a one-man show right now, don't worry about how to structure allocation.

Here is how I structured it (I was a one-man show at the time as well):

  • Par value is the minimum price that a corporation can issue its shares. I'd recommend setting par value to be $0.0001.
  • Authorize 10,000,000 shares of common stock upon filing the charter. Issue 8,000,000 to yourself.

Since you want to raise money at some point, start with a Delaware C-corporation. I just addressed a similar question here: Which state to incorporate in if I plan to raise money eventually?

Keep one concern in mind going with a c-corp in your situation: in case you are not profitable, you can't claim the loss -- since the loss does not pass thru to the owner's individual return. This is the reason why you value the shares at $0.0001.

TL;DR:

  • Delaware C-corp
  • Total shares in charter: 10M
  • Type of shares: common stock
  • Par value of common: $0.0001
  • Shares to issue to yourself: 8M
answered Mar 21 '14 at 15:53
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Nishank Khanna
4,265 points
  • From the par value and the number of shares you propose, the share capital would be $1000 . Can you explain why not set it as $1, $5000 or $1,000,000? – Wayne 5 years ago
  • Also, how does the 80% stake to self comes about? I mean why not 100% or 51% since we do not know what % of stake a future investor might demand? – Wayne 5 years ago
  • When you raise money, everything gets reallocated -- your 80% could end up being 10% depending on the terms you negotiate. I suggest 80% to start here and using the other 20% for things like option pool (for employees), advisors, etc. – Nishank Khanna 5 years ago
  • Regarding your question about "why not set it as $1, $5000 or $1,000,000"... this is actual money you will have to deposit in the corporation's account. You are buying the shares for real, it's not just on paper. – Nishank Khanna 5 years ago
  • Thanks for the replies. I have given you an up vote. How do I accept your answer? – Wayne 5 years ago
  • You're welcome! Accepting answers is being built right now (it's on the roadmap): http://www.brightjourney.com/roadmap/accepted-answers-caseNishank Khanna 5 years ago

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Shares Capital Startup