Start with 10M shares. Yes, Ten Million.

TLDR: When you first incorporate your startup, make sure you have enough authorized shares to cover grants for roles both large and small. Ten million is overwhelmingly the industry standard as it allows for grants of very small ownership to still have meaningful vesting schedules. Don’t get caught up by fears of high Delaware franchise taxes as there is a straightforward way to minimize that.

Your Startup Should Issue 10 Million Shares at Incorporation.

If you are starting a startup that plans to raise capital from investors, incentivize your team with equity, or has a trajectory that either leads to IPO or acquisition, you’ll want to incorporate as a Delaware C Corporation. When you file to incorporate your C Corporation you’ll need to determine how many shares of Common Stock you’ll authorize.

There is a ton of conflicting information out there about how many shares you should authorize, many with plausible justifications that can easily lead founders astray and result in distracting early corrections, paperwork, and fees when the founding team should be focused on building the business.

The most common mis-guidance is to incorporate with less than 5,000 authorized shares to “minimize the annual Delaware franchise tax”. If you have less than 5k authorized shares you can use the Authorized Shares filing method with Delaware and your franchise tax will be the bare-minimum: $175. While this tax minimization is true it is irrelevant for founders targeting high growth.

Why? Because 5,000 shares is not nearly enough to make small equity grants with long-term vesting schedules—the kind you use to incentivize your team in roles small and large. When you make a grant with a vesting schedule you need to divide the overall number of shares granted by the period of time it vests over to determine the shares that will vest each period (usually in months). Common vesting periods are somewhere in the range of 24-48 months which makes it difficult to vest very small amounts of shares.

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How Vesting Effects the Number of Shares you Issue

For example, if you only had 5,000 authorized shares and you wanted to grant 0.1% of equity (one tenth of a percent, a common grant level for an advisor or early paid contributor) to a team member, that would be 5 shares (5,000 * 0.001). That’s not a lot; now each share represents a significant portion of the company. Vesting 5 shares over 48 months is… non trivial. A tenth of a share per month? What happens if they leave at month 18? Do they get 1 share or 2?

By contrast, with 10M authorized shares that grant is 10,000 shares (10M * 0.001) so they are vesting ~208 shares per month and any rounding policy adopted does not meaningfully change the overall ownership granted.

Don’t be fooled by Franchise Taxes

But what about that whole franchise tax business? While it is true that only C Corporations with less than 5,000 shares can get that rock-bottom $175 annual franchise tax figure there is way for C Corps with very high authorized share counts to get close to that minimum. When it comes tax time (Q1 of each year) startups with millions of authorized shares can choose the Assumed Par Value method of franchise tax filing which should take their annual obligation down to a minimum of $400. That’s a different calculation method Delaware makes available that doesn’t just take the authorized share count into consideration but also the issued & outstanding shares as well as the company’s assets. The vast majority of startups will be paying the minimum tax for many years as their assets stay low.

For the min/maxers out there: it might be tempting to start with a low authorized share count and increase later when you’re expanding the team. However, the filing fees and paperwork shuffle quickly neutralize that hope. To increase your authorized shares you need to amend your corporate charter with the state of Delaware. If you did everything yourself (board actions, shareholder actions, amendment prep) you will still pay Delaware a $214+ filing fee, and most founders need legal support to prep the aforementioned docs so you end up spending $500+ to save $225. Additionally, you’ll now need to grant yourself and all existing team members new grants to get their intended ownership back to what it was before the amendment. More paperwork, 83(b) filings, board approvals, etc.

That’s why our flagship Delaware incorporation and management product, Gust Launch, automatically sets up new startups with 10 million authorized shares. We’ve helped thousands and thousands of founders incorporate using these best practices, saving them both fees and hassle.

What do you do if you’re already incorporated with a low share count? Fix things up before too many parties are involved. Proactively getting yourself organized right can save you a lot of fees, headaches, and minimize the charter amendment work. That’s the kind of stuff we help founders with in Mission Control every week. Even if you haven’t filed your corp yet, we help founders from all backgrounds make sure they understand the full ramifications of those early—often counter-intuitive—decision points.