How Many Shares Does a Company Have? Everything You Need to Know
Typically a startup company has 10,000,000 authorized shares of Common Stock, but as the company grows, it may increase the total number of shares.4 min read
How Many Shares Does a Company Have?
Typically a startup company has 10,000,000 authorized shares of Common Stock, but as the company grows, it may increase the total number of shares as it issues shares to investors and employees. The number also changes often, which makes it hard to get an exact count.
Shares, stocks, and equity are all the same thing. A share is one piece of ownership in a company. When you own shares, you are a shareholder. Owning shares in a company gives you the right to your part of the company's earnings and everything it owns. The more shares you own, the bigger the part of profits you're entitled to.
When a company starts up, owners must choose an amount of stocks to authorize. This is the total amount of stocks the company will issue to employees and investors. Not all authorized stocks are issued since some are usually held back for future investing and employee stock options.
Why Do Companies Issue Stock?
It doesn't make sense that a company's original owners would want to share their profits with strangers or give up a piece of their business. Most companies, at some point, need money they may not have. When this happens, there are a few options:
- Borrow the money from a person or a bank
- Sell part of the company as stocks
- Issue bonds
Bonds and loans are debt financing; issuing stock is equity financing. Rather than paying back a large loan and making interest payments, companies issue stock. The first time a company sells stock on the market is the IPO, or initial public offering. Shareholders buy stocks in hopes that they can sell them for more than the purchase price and make a profit.
Limited Liability: What Is It?
Limited liability helps protect shareholders in case a company goes bankrupt. Limited liability companies keep the personal assets of shareholders — like homes, cars, and belongings — from being used to cover debts or legal claims.
As a shareholder, you aren't personally responsible if the company whose stock you own goes under and cannot pay its debts. Limited liability means that the most you could lose is the value of your stocks, never more.
How Many Shares Should a Company Start With?
Deciding on a number of shares to start with is challenging because there are many factors involved. 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. Authorizing more stocks costs legal and filing fees. Most states charge $200 to $300 for 100,000 shares. The best investment for a business owner is to choose the highest number of authorized stocks for the lowest filing fee.
Choosing a number depends on how big you expect your company to get and how much you think it will be worth. Most stocks at the IPO have about a $10 per share value. If you estimate your company's value to be $1 million at the IPO, then the number of authorized stocks should be 100,000. In the beginning, your business won't be worth $1 million, so each stock won't be worth $10. Each share may be worth pennies, but over time, its value will hopefully increase.
Once you've decided on your number, you want to decide how you're going to issue stocks. It's recommended that startups should issue 60 percent of authorized stocks and reserve 40 percent for investing and stock options. The rest belong to the founders of the company. Out of 71 technology IPOs analyzed, the average ownership of founders was 15 percent. You can keep more or less of your stocks for founders. Many businesses have between 5 and 30 percent founder ownership at the company's IPO.
Taxes and fees play a role in deciding the amount of stocks authorized. Delaware asks business owners to disclose how many authorized shares the company needs at formation to figure franchise fees. A business has to pay taxes on stocks issued as gifts or stock options. The amount of shares you want to give away is a factor in deciding a total number to authorize. Speak with a tax professional or tax attorney for more information on your state's fees and taxes.
Many business owners believe in their businesses so much that the extra filing fees and taxes aren't that important. For the owner that expects a $1 billion valuation at the company's IPO, having a larger amount of stocks to issue is worth the extra fees.
Do Companies Reveal Their Total Number of Shares?
Companies don't generally release how many stocks they have because it's a hard number to nail down. When a company states how many shares it has, there are three options to give:
- The authorized number chosen at the startup of the business
- The current number of issued stocks
- The diluted number, which is all authorized and issued stocks
Since the market changes each day, the number of stocks any company has does too. You can estimate a company's number of stocks by dividing their company value by the stock price.
Frequently Asked Questions
- Why do companies have stocks?
Stocks are pieces of the company that are divided among the company's shareholders and owners. They are usually sold when the company needs money.
- How is share value figured?
Calculate share values by dividing the company's value by the number of total shares available.
- What are authorized stocks?
Authorized stocks are the total number of stocks a company has.
- What are outstanding stocks?
Outstanding stocks are shares owned by a person or business. They are the same as issued stocks.
- What are stock options?
Stock options are reward programs some companies offer employees. Companies give shares to employees for performance, profit-sharing, or bonuses.
- How do I buy stocks?
Protect your money by buying stocks through a broker or investment consultant.
If you have questions about authorized stocks, stock options or valuation, you can post your question or concern on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.