Key Takeaways

  • The number of shares a company issues is influenced by factors such as business structure, capital requirements, investor expectations, and future financing needs.
  • Public companies disclose their outstanding shares through balance sheets, annual reports, and investor relations sections on their websites. Private companies may require direct inquiry to determine this information.
  • Companies can issue various classes of shares, each offering different rights, privileges, and levels of voting power.
  • Understanding a company's share structure helps investors gauge its financial health, control dynamics, and investment potential.

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.

Factors Influencing the Number of Shares Issued by a Company

When deciding how many shares to issue, companies consider various factors, including:

  1. Business Structure: The company's structure (e.g., corporation, LLC) influences the number of shares it can issue. Corporations typically have a more complex share structure compared to limited liability companies (LLCs).
  2. Capital Requirements: The amount of capital a company needs for operations plays a key role in determining the number of shares issued. Companies aiming to raise significant funds often issue more shares to attract a diverse group of investors.
  3. Investor Expectations: Shareholders often prefer companies that balance their share issuance with growth potential. Issuing too many shares can dilute ownership, affecting investor interest.
  4. Employee Compensation Plans: Companies may issue additional shares to create stock option plans for employees. This strategy helps attract and retain talent by offering equity-based incentives.
  5. Control and Voting Rights: Founders may want to retain control over the company, limiting the number of shares issued to external investors. This ensures that voting power remains concentrated within the founding team.
  6. Future Financing: Companies often reserve a portion of shares for future financing rounds. This flexibility allows the company to issue more shares later without drastically altering the existing share structure.
  7. Regulatory Requirements: Different states or countries have specific regulations about the maximum number of shares a company can authorize or issue, impacting the decision-making process.

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.

How to Determine the Number of Outstanding Shares

To find out the number of outstanding shares a company has, follow these steps:

  1. Check the Balance Sheet: Publicly traded companies list their outstanding shares on their balance sheets, typically under the "Stockholders' Equity" section. This information is reported quarterly and annually.
  2. Review the Annual Report: Most companies disclose their total shares outstanding in their annual report (Form 10-K), which provides a detailed overview of the company's financial health.
  3. Visit the Investor Relations Page: Companies often have an "Investor Relations" section on their website, where they publish reports, earnings statements, and other shareholder information, including the total number of shares outstanding.
  4. Use Financial News Websites: Platforms like Yahoo Finance, Bloomberg, and MarketWatch provide up-to-date information on the number of shares outstanding for publicly traded companies.
  5. Contact the Company: For private companies, the exact number of outstanding shares may not be publicly available. Reaching out to the company or reviewing legal documents, such as a stock purchase agreement, may be necessary.

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.

Understanding Different Classes of Shares

Companies can issue various classes of shares, each with distinct rights and privileges:

  1. Common Shares: The most prevalent type, common shares, represent ownership in the company. Shareholders have voting rights and receive dividends, though they rank lower in priority for payouts during liquidation.
  2. Preferred Shares: Preferred shareholders have a higher claim on assets and earnings than common shareholders, often receiving fixed dividends before common shareholders. However, preferred shares typically do not carry voting rights.
  3. Non-Voting Shares: Some companies issue non-voting shares to raise capital without diluting control. While these shares do not provide voting power, holders may still receive dividends.
  4. Class A, B, C Shares: Companies may issue different classes (e.g., Class A, Class B) to distinguish between voting power, dividend rights, and other privileges. For example, Class A shares might offer more voting power than Class B shares.

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, Menlo Ventures, and Airbnb.