Deciding on the number of shares a startup should authorize at incorporation means striking a balance between providing enough granularity for employee grants while leaving room for an option pool and future investors without needing an amendment. It’s common for startups to authorize 10,000,000 shares at incorporation because that figure leaves room to maneuver but is low enough to keep franchise tax manageable.

The right number of shares for a company depends on how many founders are splitting equity, how fast the business plans to hire, and how soon it expects to raise a priced round.

Below, we’ll cover what authorized stock means, which document sets that number, and why 10,000,000 shares is often the default.

Key takeaways

• Authorized shares represent the maximum number a company’s charter permits it to issue, not the number held by anyone.

• The certificate of incorporation is the only document that sets the number of authorized shares. Changing it later requires a formal amendment.

• The authorized share count affects franchise tax, option pool sizing, and how easily a company closes its first priced round.

What is authorized stock?

Authorized stock is the maximum number of shares a corporation’s charter permits it to issue. The authorized number represents legal capacity, not distribution—the company doesn’t have to issue every authorized share.

This gap is important for:

• Option grants: New employees who join after formation often receive equity as part of their compensation.

• New investors: New shares are issued when a company raises a priced round and sells preferred stock.

• Additional founders: New shares are issued if someone joins the company after the initial filing and needs an equity stake.

Which document determines the number of shares authorized?

The certificate of incorporation filed with the state sets the maximum number of shares authorized. Changing that number later requires a certificate of amendment, which typically needs board approval followed by a shareholder vote before the state accepts the filing.

Founders who set their authorized count too low often find out during their first priced round, when a term sheet calls for more shares than the charter allows for. Amending the charter adds a step and a filing fee.

How many shares should a startup authorize at incorporation?

Ten million shares is a common starting point for C corporations and is the default many formation services use when setting up a company.

A few factors can push founders away from that default number:

• Founder count and equity split: More founders can mean a larger share count will help avoid awkward fractional splits when dividing equity across three or four people instead of one or two.

• Hiring plans: A company planning to hire several employees within its first year sometimes authorizes extra shares up front to avoid amending the charter before it has any revenue.

• Outstanding simple agreements for future equity (SAFEs) or convertible notes: These instruments are designed to convert into new shares when a priced round closes. Other events, such as an acquisition or a note’s maturity date, can also trigger resolution. A company expecting several outstanding notes might authorize more shares up front.

How do authorized, issued, and outstanding shares differ at formation?

Authorized, issued, and outstanding shares describe different stages of the same pool of shares.

Authorized shares are the ceiling set in the charter. Issued shares are the shares a company has distributed, whether that’s a founder receiving restricted stock or an employee exercising a vested option. Outstanding shares are the issued shares held by all shareholders, excluding shares the business has repurchased and holds in its treasury.

For example, consider a startup that authorizes 10,000,000 shares. At formation, its two founders might receive 8,000,000 shares total, issued immediately. The remaining 2,000,000 shares stay authorized but unissued, held in reserve for the option pool and future investors.

As the company grants options and sells preferred stock, more of that unissued pool becomes issued and outstanding. But the total authorized number doesn’t move unless the board and shareholders approve a change.

How does your authorized share count affect equity and fundraising?

The authorized count sets the limit on how large a company’s option pool can be without amending its charter. Founders sometimes worry that a large authorized number dilutes them, but authorization by itself doesn’t do that. Dilution happens when new shares get issued to option holders or new investors. A share sitting unissued in the authorized pool doesn’t change anyone’s percentage until it moves into someone’s hands.

This matters at fundraising time, though. When a startup raises a priced round, investors usually expect the option pool to be refreshed before their money comes in. If the authorized count doesn’t leave space for that refreshed pool plus the new investor’s shares, the company must amend its charter as part of closing the round.

How does your authorized share count affect taxes?

Your authorized share count drives franchise tax in states that have one. Delaware, for example, calculates tax under two methods.

The authorized shares method bases tax directly on how many shares are authorized: $175 for 5,000 shares or less, $250 for 5,001 to 10,000, and an additional $85 for every 10,000 shares (or fraction of that) above that. The maximum annual franchise tax is $200,000.

The assumed par value capital method calculates tax based on total assets and issued shares. For an early-stage company with few assets and a small number of shares issued, that typically produces a much smaller bill.

What should you consider when setting authorized shares?

As you consider how to raise capital, a few questions can help you find a workable number before filing.

Assess:

• Anticipated fundraising rounds: How many priced rounds does the company expect before an exit or acquisition? Roughly how much dilution is likely at each stage?

• Employee equity program size: Will the company build a large option pool early to compete for hires or keep it lean now and expand the pool at the next round?

• Future ownership structure: Do the founders expect to add cofounders, advisors, or a separate class of stock later? Does the current number leave room for that?

• Future amendment costs: Amendments require board approval, a shareholder vote, and a state filing fee. Will it be cheaper to authorize slightly more now or to amend when needed?

• Tax exposure: Does your authorized count set you up for higher franchise tax?

Stripe Atlas generates your incorporation documents as part of forming a company. The initial authorized number gets locked in alongside the rest of the incorporation paperwork rather than treated as a separate decision made later.

How Stripe Atlas can help

Stripe Atlas handles everything you need to legally launch your company—incorporation, Employer Identification Number (EIN), equity setup, and tax filings—so you can fundraise, open a bank account, and start accepting payments in as little as two business days, from anywhere in the world.

Join 100,000+ startups incorporated using Atlas, including startups backed by top investors like Y Combinator, a16z, and General Catalyst.

Get started in minutes with Atlas

The application takes under 10 minutes. You’ll choose your company structure, confirm your name is available, add up to four cofounders, set your equity split, and e-sign. Then Atlas takes it from there, including notifying cofounders to sign their documents electronically.

Banking and payments before your EIN arrives

Atlas files your EIN application automatically after incorporation. You don’t have to wait—Atlas enables pre-EIN payments and banking so you can start accepting payments and making transactions right away. US founders with a Social Security number are typically eligible for expedited IRS processing.

Automatic 83(b) tax election filing

Atlas files your 83(b) election for you—US and non-US founders alike—with US Postal Service certified mail and tracking to reduce personal income taxes. You’ll get a signed 83(b) election and proof of filing directly in your Stripe Dashboard, with certified mail confirmation.

World-class company legal documents

Atlas provides all the legal documents you need to start running your company, drafted by Cooley, one of the world’s leading venture capital law firms, and stores them directly in your Stripe Dashboard. These documents are designed to help you fundraise immediately and ensure your company is legally protected, covering aspects like ownership structure, equity distribution, and tax compliance.

$2,500 in Stripe credits, plus $50K+ in partner discounts

Atlas startups get $2,500 in Stripe product credits for their first year, plus $50,000+ in discounts on essential tools—Mercury, AWS, Carta, Xero, Perplexity, and more. Delaware registered agent service is also included free for your first year.

Learn more about how Atlas can help you set up your new business quickly and easily, and get started today.