How many shares should be authorized?

The number of authorized shares is largely irrelevant from the standpoint of ownership of the corporation. It is the percentage of shares owned by a shareholder that determines the shareholder’s ownership interest in the company. For example, if a corporation is authorized to issue 1,000 shares and Joe owns 500 shares, Joe’s ownership interest would be the same as if the corporation was authorized to issue 1,000,000 shares and he owned 500,000 of them. In California, there are no additional fees for authorizing large number of shares. However, in other jurisdictions (e.g.., Delaware) the annual fee owed to the state (i.e., franchise tax) is calculated based on the number of authorized shares. As a result, great care should be taken when initially determining a corporation’s capital structure. For example, in Delaware, it is typically advisable to authorize no more than 3,000 shares of capital stock.