How many shares should a new entity authorize?
Generally start up companies are authorized for anywhere from five to ten million shares of common stock. Let’s say the founders each take two million shares for themselves with a one million to two million share option pool, for a fully-diluted base of around six million shares. The remaining authorized but unissued four million shares sit in reserve should the company need to issue stock in the future. From a numbers point of view, it doesn’t matter if there are ten million or one hundred million fully-diluted shares, but for some reason new option holders/employees like receiving larger numbers of shares. Then there is, of course, the Warren Buffet philosophy, which is to never plan on splitting or otherwise diluting your stock, (hopefully) making the stock price so high that it is out of reach of most Americans.
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