Articles of Incorporation are an essential requirement of forming a California startup corporation. This document is filed with the California Secretary of State’s office and establishes the corporation as a legal entity as well as certain key facts about the corporation, including the name of the corporation, its principal place of business, the name and address of its registered agent, the purpose of the corporation, and others. One of the most important decisions that founders are faced with when filing an Articles of Incorporation is how many shares of stock to authorize. There are many considerations that should be addressed when making this decision, so it is important for anyone considering forming a corporation to discuss their circumstances and goals with an experienced Silicon Valley business law attorney.
Determining how many shares to issue can be complicated
Authorizing shares allows a company to divide ownership among many different parties and also makes it possible to raise capital. As such, it is important to authorize enough shares to accommodate growth but not so many as to make individual shares nearly worthless. Importantly, not all the shares that the Articles of Incorporation authorizes have to be issued, so a company can reserve shares for issuance at a later date. Some of the reasons it may be beneficial to authorize more shares than you plan on issuing include the following: