Authorised Shares and Par Value: A Simple Guide for Foreign Founders
How many shares should your US corporation authorise? What par value means, how both affect Delaware franchise tax, and investor-friendly share setups for startups.
When you incorporate a US company, you make two decisions that sound technical but have real consequences: how many shares the company is authorised to issue, and the par value of each share. Get them right and fundraising, equity grants and franchise tax are simple. Get them wrong and you face confusing tax notices and messy paperwork.
Authorised shares vs issued shares
- Authorised shares are the maximum number of shares the company may issue, as stated in its certificate of incorporation.
- Issued shares (or outstanding shares) are the shares actually given to founders, investors and employees.
You do not have to issue all authorised shares. Startups typically authorise a large number and issue only part of it, keeping the rest for future investors and an employee option pool.
Why startups authorise millions of shares
A common setup is 10,000,000 authorised shares, with, for example, 8,000,000 issued to the founders. Reasons:
- Granularity: it is easier to grant 10,000 options than 0.1 of a share.
- Room to grow: shares are available for investors and the option pool without amending the certificate.
- Familiarity: investors and lawyers are used to these numbers.
What is par value?
Par value is a nominal minimum price per share, written into the certificate of incorporation, for example $0.00001. It has nothing to do with what the company is worth. It matters because:
- shares generally cannot be issued for less than par value, so a very low par value lets founders buy their shares for a trivial amount (10,000,000 × $0.00001 = $100), and
- it is used in some state fee and tax calculations, including Delaware's assumed par value method.
Shares can also be "no par value", but a very low par value is more common for Delaware startups.
The Delaware franchise tax trap
Delaware calculates corporate franchise tax using one of two methods:
- Authorised shares method (the default on the notice): based only on authorised shares. With 10,000,000 authorised shares, the default figure runs into tens of thousands of dollars.
- Assumed par value capital method: based on gross assets, issued shares and authorised shares. For an early-stage company with modest assets, this usually produces the $400 minimum or close to it.
Delaware charges the lower amount when you file using the second method. Choosing a sensible share structure and filing correctly is essential. See Delaware franchise tax explained.
Investor-friendly setup
A typical early-stage structure:
| Item | Common choice |
|---|---|
| Authorised common shares | 10,000,000 |
| Par value | $0.00001 |
| Issued to founders | 7,000,000–9,000,000, split by agreement |
| Reserved option pool | Created later by the board, often 10–20% |
| Founder vesting | Four years with a one-year cliff |
| Preferred shares | Authorised later, at the first priced round |
Founders usually buy their shares at par value, paid to the company, and sign a stock purchase agreement. Investors may also expect founders to assign intellectual property to the company.
Founders in different countries
Each founder's home country may tax shares received or held differently, and some countries have rules on holding shares in foreign companies. Take local advice, especially if shares are issued at a significant discount to market value.
Can I change the numbers later?
Yes. Authorised shares and par value can be changed by amending the certificate of incorporation, with board and shareholder approval and a state filing fee. Stock splits are also possible. It is simpler to start with a sensible structure.
LLCs are different
LLCs do not have shares; owners hold membership interests expressed as percentages or units. If you plan to convert later, see converting an LLC to a C-Corp.
How UCB helps
We incorporate your company with an investor-friendly share structure, prepare initial resolutions issuing founder shares, and file your Delaware franchise tax using the most favourable method every year. Read the US C-Corp guide and stock options for a global team.
Setting up your share structure? WhatsApp us at +91 8105 199 399 or email info@ucbsolutions.com.
Let our experts handle it for you
Every business is different. Message us with your country, business type and goals, and we will recommend the right structure, state and package. We do the work; you focus on your business.
This article is general information for non-resident business owners and is not legal or tax advice. Rules and fees change; contact us to confirm what applies to your situation.
