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    When I allocate shares to the founders, what happens to the rest of the authorized shares?

    Last updated: October 2, 2015
  Valcu Support

When I allocate shares to the founders, what happens to the rest of the authorized shares?
Common practice among startups is to authorize more shares than the Company initially issues to founders. The shares not issued to the founders would still be considered authorized shares, and would be available for issuance in the future. Because these shares are not issued, no certificate/notice is created for these shares. If they never become issued, however, such shares would not be taken into account when determining ownership of the Company and allocation of any proceeds that would at a given time be distributed to the shareholders. Note that Delaware franchise tax is calculated such that if only a small portion of the authorized shares is issued, the franchise tax may increase significantly (each authorized but unissued share has an imputed value equal to an issued shares). Therefore, it is common for companies to issue at least half of the authorized shares.
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