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How should I price the initial shares of a startup?

Eugene, OR |
Filed under: Business

In determining equity, members of our company will contribute with money and work to the startup phase. How much a single share of a company-to-be should be priced?

Thanks a lot for your feedback! How much would it cost to hire an attorney and get all the agreements ready to be signed?

Attorney Answers 3

  1. Best answer

    As has been said by everyone else, if you're planning to start a multi-owner business (especially with different amounts of capital contributions) and you're hoping to not hire an attorney, this is a bad idea. Valuation is just one concern. In fact, if there are different contributions from each member, it's probably best for each of you to have an attorney. One thousand or so on the front end when everyone is happy is well worth avoiding tens of thousands on the back end when trying to divide up profits or losses.

    Licensed in Oregon. Advice provided is general legal information relevant to the facts provided. It is not intended as legal advice applicable to your specific situation. No attorney/client relationship is created unless and until we have met and entered into a written representation agreement. Contact me at 541-250-0542 to discuss your matter further.

  2. Please, hire a local business attorney. Valuation is complex and not something that could be answered without having an idea of your business, the amount contributed, the specific work and dozens of other facts.

    More important that valuation is having a written owners' agreement. This is absolutely critical. This agreement should include buyout provisions if the members do not do the work, dispute resolution, capital calls, distributions, and on and on. If you don't have this agreement, in the event of a dispute your only option may be to file a lawsuit to dissolve the business. The time and cost of doing that is a large multiple of what it will cost if the members pool their resources to hire a business attorney now.

    Just spend a few minutes going over the business questions here over the last week to get an idea of the problems that happen when people enter business deals without legal advice and written agreements. Good luck.

    This answer is for informational purposes only and is not legal advice regarding your question and does not establish an attorney-client relationship.

  3. The first question is what the valuation of your company is. From there the # of shares you decide to issue will determine what each share is worth. If your company is worth $100 and you issue 10 shares - $10 a share. If you issue 100 shares, $1 a share.

    As the previous answer indicated - you really need to consult with a startup or business attorney to get your initial corporate governance in order and to assist with matters such as capitalization and valuation.

    Legal disclaimer: I am licensed to practice law in the state of Washington and the answer provided above is for general information purposes only and should not be relied on as specific legal advice. This answer does not form an attorney-client relationship. You should consult with an attorney of your choice to fully advise you about your legal rights and obligations.

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