Why am I incorporating with 10,000,000 authorized shares, and can I change this?
If you set up a company the “proper” way that any venture-funded company would, you need millions of shares. The minimum franchise tax — due March the next calendar year, not upon setup — is $400 using the assumed par value capital method, instead of $175 using the authorized share method.
While the minimum franchise tax in Delaware is $175 using the authorized shares method for companies issuing 5,000 or fewer shares, these share reserves are recommended only for small businesses that never intend to seek funding, issue stock options to employees, or provide any type of equity to advisors, board members, or accelerator programs.
Setting a company up the right way lets the company give relatively small grants to advisors and employees, vesting over 48 months with 1/48 of their shares vest every month. If you have 10 million shares and you grant 0.1%, the grantee would have 10,000 shares, and you can have a meaningful 48-month vesting program, something over 200 shares per month. By contrast, if you authorized only 5,000 shares, an 0.1% grant would be 5 shares. You cannot easily vest 5 shares over 48 months.
Because of this, and because Gust Launch is specifically designed for high growth businesses, you are not able to change from the 10,000,000 authorized shares with which we set you up. Instead, if you don’t plan to issue options or raise outside funds, you should consider another approach to incorporating your business, potentially even incorporating in your home state as an LLC.
Last updated on August 16, 2017