Par Value for a Startup Company's Stock
Par value is the minimum price that a corporation can issue its shares. While I typically see par values of either $1 or “no par value” when looking at startups that have incorporated on their own, I recommend that par value be set at $0.01 to as low as $0.00001. My recommendation is based on my belief that startups should authorize 10,000,000 shares of common stock and issue around 8,000,000 to 9,000,000 shares to its founders.
Therefore, if your startup issues 8,000,000 shares with a $0.001 par value, the minimum the founders would have to pay for those shares is $8,000.
As a practical matter, I recommend that founders shares be issued at some multiple of par value. This multiple should be a whole number greater than 1. Thus, if for some reason you have to execute a forward stock split, your startup may not have any par value issues.
About the Author
Ryan Roberts is a startup lawyer and represents technology companies through all phases of the startup process, including incorporation, seed & venture financings, and exit transactions. Click here to learn more about his practice.
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Please consider subscribing to The Startup Lawyer, following @startuplawyer on Twitter, or contact Ryan directly.22 Responses
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Well, Delaware will take the lower of your authorized shares or “assumed par value” capital when determining your incorporation fee. I would imagine startups would go for the latter when wanting to issue millions of shares (and keeping par value low).
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Jordan says:
If I’m the founder, would I have to “pay” for the shares that I issue to myself?
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You can set the par value low and consideration can usually come in non-cash form (i.e., IP).
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I’m presently the sole owner of my corporation. I ws issued 500 shares valued at $1.00 per share. How do I authorize 50,000 more shares at a par value of .01?
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[...] document (for now), except that you authorize the amount of your corporation’s shares and set par value. Yet the charter is important because it creates the entity that will hold the IP your team is [...]
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Matt says:
In reference to what Jordan asked, “pay for the shares that I issue to myself”, to whom does he pay to? Is it to the company’s separate bank account or to the state or both?
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Matt – It’s to the corporation. The cash or other property is the consideration for the corporation’s shares. So if you cut a check, it would be to “XYZ Co.” and then likely deposited in the corporation’s bank account.
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Dar says:
Does Delaware law allow you to declare $0.00001 as the par value?
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Leonard says:
I have a friend overseas whose 300 square kilometers of land lies in a large gold field. I am interested in starting a mining company with him. Problem being, neither of us have large capital, so we’re looking at attracting investors. Could we start a company with stocks valued say at $0.25 and try to raise capital by selling them? Can we issue 100,000,000 shares and attempt to sell them?
How much is it going to cost us to offer 100 million shares?
Sorry for all the questions, but this is a pretty new topic for me.
Any suggested readings?
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In CA, if I authorized anything above 1 million shares I pay the Dept. of Corporations $300. Now what? What is the process involving the declaration or issuing par value for those shares? In other words, what additional paper work do I have to file and where in order to disclose what the par value actually is and eventually pay the company for them?
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@ Dar – Should be able to. Delaware just requires that you give a par value or state that the shares have no par value.
@ Leonard – You could, but of course be wary of the securities laws. I don’t know what you mean by how much will it cost to sell the shares.
@ Matt – Not sure. I typically only form Texas and Delaware entities.
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James Cox says:
I’m in the process of incorporating in Texas, there will be two share holders at this time. Are your recomendations for 2 share holders still 10,000,000 shares at a par value of .01-.00001, How much do the corporate filing fees vary with larger amounts of shares.
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James,
The number of shareholders doesn’t factor into the authorization of shares issue. Corporate filing fees in Texas are $300, regardless of the shares authorized.
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CW says:
I’m in the beginning stages of starting my own business as an IL corporation and as sole owner/founder. If the stock will be issued at “no par value,” is the suggestion of 10mil shares recommended? Also in researching my company name via the internet I came across another company’s (located in a different state-NJ) website and the ame is similar to the website name I want to use. It contains two of the words that I want my website to have – one being “virtual” and the other “legal.” Because these terms are quite “generic” and/or widely accepted, would I be infringing on any trademarks if I use the website name that also contains the words “virtual” and “legal”?
Thank you.
CW -
CW-
The 10mil shares rec does not have any relationship to par value.
I’m not too familiar with trademark infringement, but you could start by searching the USPTO to see if they have any registered marks. I would consult an IP attorney.
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James says:
I have incorportated in NY State with the standard 200 shares no par value and would like to increase the number of authorized shares to 2 million shares. What is the minimum par value which can be set to shares in NY – Do they allow par value as low as $0.00001?
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Carl says:
Why would it not be a good idea to issue my stock at 100,000 shares with no par value? That way whenever I issue stock I can just set the price I want at that time. My company is a one man company with no employees and a max of 5-6 employees over the next 5 years. A small insurance and investing firm. I will not be taking it public and will not be taking on partners.
Thank you
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sorry for the double post. It is a Texas corp.
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Suhas says:
I am about to incorporate a start-up in Delaware with 2 of my friends. Post incorporation, we are planning to approach investors for funding. I would like to know what is the best way to structure the shares because currently we have agreed on Founder A gets 55%, Founder B gets 25% and Founder C gets 20%. With this pattern can you suggest the best authorized shares to be issued with minimal fees. Thank you.
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Carlos says:
If it’s approximately $300 for a regular incorporation, how much does it cost to incorporate a corporation with 50,000,000 shares? In Delaware?
This is something that I’m currently looking at. I’m looking to use either incorporate.com, bizfilings.com or legalzoom.com to incorporate my business to help save cost.
I would like to issue more than 10,000,000 shares but have read that some states charge a fee for having a very large number of shares when incorporating.