TEXAS BUSINESS LAW
How Many Shares Should You Authorize?
Ten million shares of common stock is the standard answer for a new startup corporation — and in Texas it works cleanly, because authorized shares cost you nothing here. Authorized shares are the maximum number of shares your corporation is allowed to issue, a ceiling you set in the certificate of formation (Texas’s version of a certificate of incorporation). You don’t issue them all on day one. You authorize a number high enough to cover founders, an employee option pool, and early investors so you don’t have to amend your formation document every time you grant equity.
This article explains what authorized shares are, why 10 million is the common default, how founders typically divide them, and the one place — Delaware — where the number can cost real money.
What “Authorized Shares” Means
Authorized shares are the upper limit on how many shares a corporation may ever issue, fixed in its certificate of formation. Texas law requires the certificate to state “the aggregate number of shares the corporation is authorized to issue” (Tex. Bus. Orgs. Code § 3.007). It’s a cap, not a count of who owns what.
Four terms get used loosely and mean different things:
| Term | What it means |
|---|---|
| Authorized | The ceiling stated in the certificate of formation — the most you can issue without amending |
| Issued | Shares the corporation has actually sold or granted |
| Outstanding | Issued shares currently held by shareholders |
| Authorized but unissued | The headroom — authorized shares you haven’t issued yet, available for future grants and investors |
A corporation can authorize 10,000,000 shares and issue only 6,000,000 to its founders on day one. The other 4,000,000 sit as authorized-but-unissued headroom.
The Standard Answer: 10 Million Shares
For a startup that plans to grant equity to employees or raise money, authorizing 10,000,000 shares of common stock is the widely used convention. It’s a round, easily divisible number that leaves room for a founder split, an option pool, and investor rounds without an early amendment, and it looks normal to the investors and lawyers who will see your cap table. Early-stage corporations commonly authorize somewhere between 1,000,000 and 10,000,000 shares; 10 million is simply the most common landing spot for a company with growth and hiring plans.
A small, closely held Texas corporation with no outside-investment plans doesn’t need 10 million. A few thousand — or even the older default of 1,000 — is fine. The reason founders still favor a large number is granularity: with 10 million shares, a 0.5% option grant is a clean 50,000 shares rather than an awkward fraction.
How Founders Typically Split Them
In a typical 10-million-share setup, the shares break down roughly like this at formation:
| Allocation | Typical size | Status |
|---|---|---|
| Founders | 5,000,000–7,000,000 issued | Issued and outstanding |
| Employee option pool | ~10–20% reserved (1,000,000–2,000,000) | Reserved for future grants |
| Future investors / reserve | The remainder | Authorized but unissued |
Founders issue themselves a majority block, set aside an option pool to recruit early employees and advisors, and keep the rest in reserve for the first financing round. None of this is dictated by statute — it’s market practice — but it’s the structure investors expect to see.
Too Few vs. Too Many
The risk of authorizing too few shares is friction. If you’ve issued most of your authorized shares and then want to grant options or bring in an investor, you have to amend the certificate of formation first — which in Texas means board approval, shareholder approval, a certificate of amendment filed with the Secretary of State, and a filing fee. That’s avoidable delay at exactly the moment you want to move quickly.
The risk of authorizing too many depends entirely on your state. In Texas, there is no penalty at all. In Delaware, there can be a steep one.
The Texas vs. Delaware Difference
This is the part founders most often get wrong, because most online advice is written for Delaware.
Texas charges nothing for authorized shares. The Texas franchise tax is calculated on a taxable entity’s margin (derived from revenue), not on share count or par value. Entities at or below the no-tax-due threshold — $2.65 million in annualized revenue for 2026 reports — owe no tax, though they still file an information report. So in Texas, authorizing 10 million shares costs exactly the same as authorizing 1,000: nothing.
Delaware charges based on shares. Delaware’s corporate franchise tax can be computed two ways, and the corporation pays whichever is lower (up to a $200,000 cap):
- The authorized shares method is based purely on share count, with a $175 minimum. A corporation that authorizes 10 million shares would face a large five-figure bill under this method.
- The assumed par value capital method is based on gross assets, issued shares, and par value, with a $400 minimum.
A Delaware startup with 10 million authorized shares at a tiny par value typically uses the assumed par value capital method to bring the bill down to a few hundred dollars. That’s why the standard Delaware setup pairs a large authorized number with a very low par value — and why no-par shares are usually a mistake in Delaware. If you’re choosing between the two states, the share-count tax is one of several differences covered in Texas vs. Delaware for your startup.
Practical Guidance
For a typical Texas for-profit corporation:
- Authorize generously. Ten million is the common default if you’ll grant equity or raise money; a smaller number is fine for a closely held company with no such plans. Extra authorized shares cost nothing in Texas.
- Issue conservatively. Issue founders their block, reserve an option pool, and keep the rest as headroom.
- Set a nominal par value or no par. The share count and the par value are separate decisions — see what par value means.
- Document the consideration. Have the board determine and record what’s paid for each issuance (§ 21.160), and collect it before issuing (§ 21.157).
- Get the certificate right the first time. The authorized number lives in your certificate of formation; raising it later takes an amendment.
Frequently Asked Questions
Do I have to issue all my authorized shares?
No. Authorized shares are a ceiling, not a quota. Most corporations issue only a portion and keep the rest as authorized-but-unissued headroom for option grants and future investors.
Does authorizing more shares dilute the founders?
No. Authorizing shares changes nothing about ownership. Dilution happens only when shares are actually issued. You can authorize 10 million and own 100% of the company until you issue stock to someone else.
What if I need more shares later?
You amend the certificate of formation: board approval, shareholder approval, and a certificate of amendment filed with the Texas Secretary of State, with a filing fee. It’s doable but slower than authorizing enough up front.
Does the number of authorized shares affect my Texas franchise tax?
No. Texas franchise tax is based on revenue-derived margin, not on authorized shares or par value. The share count only affects taxes in states like Delaware that use an authorized-shares calculation.
Share structure is one of a handful of formation choices that are cheap to set correctly and expensive to unwind. Reidel Law Firm forms and advises Texas corporations and LLCs on transparent flat fees — talk to a Texas business attorney before you file.
