how to determine number of shares

[cf2004]

Hi all, I'm a newbie, so please be supportive . Anyways, say I start a corporation, and I estimate to have 100 employees in the next year, I have money to pay them for 2 months so I need to find investors etc etc. Well, if I have a corporation, means I have stock, so how many shares are there in my stock? Is it a random number? Is there a criteria/formula that can help me determining the number of shares? Can I say: I have 10.000$ and I want to have 10 shares, 1000$ each at the moment I start the business? or 100 shares, 100$ each? or 1000 shares, 10$ each? I really don't know and I was hoping someone can shed some light or direct me to some 'for dummies' sites. Thanks!

[The Old Sarge]

1. Not all corporations have stocks. Some do, some don't.

2. If your corp is to have stock, you need to decide if it will be private stock or public stock ... or some of each.

3. Here's an informative but short read that should get you started.

4. Google "initial corporate stock offering" ... without the quotes, and you'll get a lot more reading/research sources.

5. Good luck!

[ArcSine]

Good advice from The Old Sarge. If I might chime in with a couple of thoughts...

CF2004, it's pretty much up to you as to how many shares to authorize and issue. You'll specify these numbers in your incorporation process.

In most cases, the best thing is to take a "plan ahead" approach. I've seen plenty of closely-held companies in which the owner(s) really had no intention of spreading any ownership around...i.e., their intention is for the company to be held by one or two individuals for the biz's duration. In such cases they frequently just authorize a few shares (10, say) with 5 shares being held by each of the two 'partners', thereby creating a 50/50 arrangement.

On the other hand, if you have plans to bring some equity investors on board at some foreseeable point, it'll probably be simpler to authorize a larger number of shares at the outset. You'll decide what that number is, but just keep in mind that it's easier to 'fine-tune' the ownership percentages when you're working with a large base of total shares. For example, if the corp only has 10 shares authorized (and outstanding), the smallest ownership percentage you can create for an investor is 10%. With 100 shares, you can have 1% owners...you get the drift.

Out there in the wild, you'll frequently run across these common themes...

• Companies which contemplate outside investors (esp. private equity investors or venture capitalists) usually authorize a large number of shares (e.g., 100,000) right at the outset. They don't have to be issued right away, of course, but once the shares need to be issued, the authorization of a sufficient quantitiy of shares is already taken care of.
• Companies that take on outside investors usually create multiple 'classes' of stock, with each class being endowed with different voting rights, profit participation rights, dividend payouts, liquidation preferences, and so on. This makes it easier to properly address the different positions and needs of a 'silent investor', say, vs. an owner-manager. The multi-class structure also permits a proper consideration of the varying risk levels being assumed by the parties, and an appropriate response in terms of how the profits, losses, and cash flows are to be divvied up.
• If you discover down the road that you need more shares than you originally contemplated, no prob...just go through whatever procedures your state's incorporation laws provide for the authorization of more shares.

OK, I'm rambling now. Gotta split, but best of luck on your new venture, and congrats.

[cf2004]

thank you both for the info, it's very helpful!!