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How many shares should I allocate?

Austin, TX |

I have procured investment capital for a venture. We are forming a C-corp to assign shares to the investors based on their investment.

1) How many total shared should be allocated to the corp based on any future tax or revenue benefits?

2) Should we offer $1/Share to the first investors, or other scenario like $0.50/Share? What are the benefits?

Attorney Answers 5


  1. I always love to see questions about new business ventures. Right now, as you set up this corporation, you are determining the future of your company. Your corporate structure (number and types of shares, share price, taxation elections, etc.) is complex and variable, and the decisions you make will impact this corporation for years to come. These issues and decisions are too important, and too fact-specific, to be handled through an online forum. I strongly urge you to consult an experienced corporate/business attorney in your area. Spend some time sharing your plans, goals, and business parameters with your attorney and allow him/her to provide detailed advice which will specifically address the venture on which you and your company are embarking.

    Good luck!

    Your question has been answered as a courtesy. This is not paid legal advice. Nothing in this communication is intended to create an attorney-client relationship. Unless expressly stated otherwise, nothing contained in this message should be construed as a digital or electronic signature, nor is it intended to reflect an intention to make an agreement by electronic means.


  2. You need a business attorney to structure the ownership of the entity. The allocation of shares is usually determined by negotiations between the parties involved. You need to also look at the certficate of formation to determine what type of capital structure was authorized and the number of shares of each class that the corporation is authorized to issue.


  3. You need to be extremely careful in what you are doing. You are engaging in securities transactions which must be registered in your state and every state where the investors reside. In addition, you may have to register your offering with the SEC. See a securities attorney immediately about your venture and provide him with your Business Plan. This is a very dangerous situation if you are doing this yourself without legal advice, and having your offering drafted by an securities attorney.

    Hope this helps!
    Phillip M. Smith Jr.
    Los Angeles Tax & Business Attorney
    Licensed in the United States Tax Court
    www.culvercitytaxandbusinesslaw.com
    www.corporateattorney.com

    Main: 323-292-4116 ❘ Cell: 562-505-1004

    THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. The answer to question does not create an attorney-client relationship or otherwise require further consultation. Mr. Smith is licensed to practice law throughout the state of California with offices in Los Angeles County. He is authorized to handle IRS matters throughout the United States, and is also licensed to practice before the United States Tax Court. His phone number is 323-292-4116 or his email address is philsmithjr@worldclasslawyers.com.


  4. I strongly agree with my colleagues. These 'first steps' decisions can help or hurt you in countless ways further on in the life of your business - so much so that by not hiring a corporate attorney to provide thorough advice based on the specifics of your situation would really be doing a disservice to yourself and your investors. If you need a recommendation for an attorney who handles corporate formation and governance issues in Austin, contact me privately and I'll be happy to offer some suggestions.

    Best of luck!

    Nothing in this is answer should be construed as legal advice. Neither the answer, nor its particular contents, is intended to create an attorney-client relationship between the person asking the question and Andrew R. Stubblefield or Coats | Rose, PC. The person asking the question should contact a licensed attorney in their area and solicit actual legal advice based upon the particular facts and circumstances underlying their issue.


  5. I agree with all my colleagues/ Take note that your concept of $1/share or $.50 per share makes no sense without having a proper context as to the value of the enterprise and the number of shares you plan on issuing to the shareholders. In other words, if you deem the company to be worth $10 million and decide to have 1 million shares issued then $10M/1M shares = $1/share....so if you change the enterprise value of the company and decide to have 100 million shares then do the same math....there is but a process not a simple one-size fits all answer.

    My answer is not intended to be giving legal advice and this topic can be a complex area where the advice of a licensed attorney in your State should be obtained.

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