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Business How to Start a Business Financing Our Company Equity Financing

Posted by Richard Reis
Richard Reis
Courses Plus Student 8,907 Points

What makes you decide how many shares you want your authorized stock to have?

In the video it says you can decide for your authorized stock to be 10 million shares. What do you base that number in? What makes you decide?

beven nyamande
beven nyamande
9,575 Points

Yes i can second your question how would be come up with that valuation? yes ummm

Mark VonGyer
Mark VonGyer
21,239 Points
Mark VonGyer
Mark VonGyer
21,239 Points

You take the estimated value of the company, and create x number of shares at y price. The price fluctuates alot more rapidly than the number of shares would, so it is better to set a high number of shares at a lower price. That's why he suggested 10 million shares.

1 Answer

Rachelle Wood
Rachelle Wood
15,362 Points
Rachelle Wood
Rachelle Wood
15,362 Points

One thing not explained here is the starting capital. Your starting capital won't fluctuate, it is a set amount. You want to strategize how many shares you start out with in conjunction with your starting capital based on who is founding the business with you (family, partners, people you don't know, etc.), where you are founding the business and what kind of business entity you are forming (in some states there is actually a default number of shares per kind of entity formed).

Let's say your company starts out with 1 million €. If you issue 1000 shares vs. issuing 10000 shares, the value not only changes a lot but let's say one of the initial shareholders buys 100 shares. In the first case, he would own 10% of the company and that would reflect on how much he would impact decision making. In the second case, he would only own 1% of the company.

If he were to still pay the same amount of money in both cases he would still own the same percentage of the company so big deal, right? The thing is, it is dependant on how many people you have on board. If there are a lot of people, that person might only be able to buy 100 shares because that is all that remains to be purchased. This would effectively keep him from having much clout in the business decision making. You can effectively have just a small number of big shareholders in this scenario and a large number of small shareholders. That is what most large companies do.