Regardless of your launch capital, 10 million authorized shares is generally the sweet spot for a new startup. But just because 10 million shares have been authorized doesn’t mean that all or even most of them should be immediately allocated or issued to founders, or dumped in the employee stock option pool.
Authorized stock, or authorized shares, refers to the maximum number of shares that a corporation is legally permitted to issue, as specified in its articles of incorporation in the U.S., or in the company’s charter in other parts of the world.
Share Capital Formula
- Formula 1: Share capital equals the issue price per share times the number of outstanding shares.
- Formula 2: Share capital equals the number of shares times the par value of stock plus the paid in capital in excess of par value.
You can find the total number of shares in the shareholders’ equity section of a company’s balance sheet, which also summarizes the assets and liabilities. The numbers of authorized, issued and outstanding common shares are listed in this section, along with the number of preferred shares.
Many experts suggest starting with 10,000, but companies can authorize as little as one share. While 10,000 may seem conservative, owners can file for more authorized stocks at a later time. Typically, business owners should choose a number that includes the stocks being issued and some for reservation.
Most people might to aim to hold between 10 and 20 stocks. Even those can take a lot of time to manage, though, so consider a low-fee, broad-market index fund, such as one that tracks the S&P 500, for much of your money.
Authorized shares are the maximum number of shares a company is allowed to issue to investors, as laid out in its articles of incorporation. Outstanding shares are the actual shares issued or sold to investors from the available number of authorized shares.
Authorized shares vs issued shares refer to stock that is authorized versus the maximum number of shares that are legally permitted to be issued by a corporation. The shares issued on the open market to the public for trading comprise all or a portion of the authorized shares of the corporation.
The number of authorized shares can be increased by the shareholders of the company at annual shareholder meetings, provided a majority of the current shareholders vote for the change.
Just take the market capitalization figure and divide it by the share price. The result is the number of shares on which the market capitalization number was based.
Run the Calculation
All you have to do now is run a simple calculation: Par value of preferred stock = (Number of issued shares) x (Par value per share). So, multiply the number of shares issued by the par value per share to calculate the par value of preferred stock.
The premium is calculated by finding the difference between the share issue price and the par value of shares offered for sale.