The term “authorized shares” refers to the total number of shares that the company is permitted to issue to all shareholders. The term “issued” or “outstanding” shares refers to the number of shares that have been issued to shareholders. For example, a corporation may authorize 1,000 shares but only issue 100 shares to Shareholder A. In that scenario, Shareholder A would be a 100% owner of the business. Later on, the corporation may issue another 200 shares to Shareholder B. In that scenario, Shareholder B would be a 66% owner of the business while Shareholder A would be a 33% owner.
If all of the authorized shares of a corporation are issued to shareholders, then the corporation will need to authorize more shares to be able to issue any other shares to a new shareholder. For example, if a corporation authorizes 1,000 shares, and 500 are issued to Shareholder A and 500 to Shareholder B. If a third shareholder, Shareholder C, wants to invest in the business in exchange for shares, then the corporation will need to authorize even more shares, since there are currently no available shares to issue to Shareholder C. That will necessarily cause the dilution of Shareholder A and Shareholder B’s shares.
The exact number of shares your corporation should issue is based on who will actually be owning the company.
A single business owner that has no co-owners, investors, or others involved in the ownership of the business will generally issue all authorized shares to the businessowner, meaning that the business owner is a 100% owner of the business.
On the other hand, startup founders of a venture-backed startup will generally issue anywhere from 51% to 80% of the shares to themselves, keeping a pool of unissued shares available to issue to investors in exchange for investment dollars later on, or for employee stock options and other incentives.
Just remember that whatever you decide, the division of shares will decide not only ownership of the company, but often, the voting rights of the shareholders. For example, if a shareholder is issued 51% of the company and another shareholder is issued only 25%, then the 51% owner will have the controlling decision on the election of board members, who in turn appoint officers and executives.
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