Authorized shares

In Delaware, the certificate of incorporation must state how many shares of each class may be issued. It must also give each class’s par value, or say that the shares have none. The board of directors can issue shares up to that number. Raising or lowering it takes an amendment to the certificate. A company that needs more shares for a new funding round amends its certificate first.

Authorized shares are often confused with issued and outstanding shares. Issued shares are the shares the company has sold or granted, including treasury shares it bought back but has not retired. Outstanding shares are the issued shares that stockholders hold, so they leave out treasury shares. An option, SAFE or convertible note adds to issued shares only on the day it is exercised or converts.

Delaware’s franchise tax notice counts authorized shares alone, so a startup with millions of them is often billed far more than it owes.