Authorized shares to be issued? HELP! (Illinois BCA-2.10 Incorporation)

[SMBEnterprise]

Hello all,

I'm just about ready to send in BCA-2.10 Articles of Incorporation to the Secretary of State in Illinois. However, when I come to the stock portion of the form, I have no clue what to put.

This is going to be a small business, and I want to elect for s-corp status. I've read somewhere that those who incorporate their business usually put 10,000,000 number of shares authorized and 8-900,000,000 shares proposed to be issued (For investors and such).

What are the risks of me following that notion? Should I write down a smaller number? Does it even make a difference? Right now, I have 10,000,000 shares to be authorized and 9,000,000 shares proposed to be issued. No consideration to be received.

Thank you for your help.

[Austy]

If it's small, and especially if it'll be an S corporation, I'd just go with something like 7,000 to 10,000. S corporations can't have more than 75 shareholders, and you could always divide shares into fractions if you had to do it.

Even if you were to take on investors, you're not going to need a stock count like Microsoft has, because from what I've read you have no intentions on going big enough to be a blue chip public company. If that's true, make the math simpler by authorizing less shares. If you ever come to want bigger plans, you can simply revise the articles of incorporation as long as it is agreed upon among the shareholders at that time.

[OweLessTax]

This is a common area of concern, and yet is of little importance.

Keep these facts in mind:

Ownership is relative, and it is relative to percentage of ownership.

Ownership percentage is a function of Percentage of ISSUED Stock.

It will cost you more later to increase the available stock.

It might cost you more now to increasae the available stock above a certain number of shares.

So. . . Let's put this in practical terms. If you issue yourself 1 share of stock, and that is the only share issued, you own 100% of the company. If you issue yourself another share, or another 10,000 shares, your percentage of ownership doesn't change.

Each state usually has a fee structure tied to the number of shares or the total par value of the shares. In illinois it is tied to only the initial paid in capital. Should we have a high, or low initial paid in capital amount? I'd go with low. Since you are prepaying on $16,666 dollars of initial paid in capital, That might be a reasonable number of intended to be issued stock.

Trying to predict the proper number of available shares precisesly for unseen events in the future is impossibly, unless your crystal ball works a lot better than mine. And in fact, those unforeseen events will probably never exist for you. So let's pick a number within a reasonable range.

What might we be looking for in "reasonable"?

How about enough shares to create almost any mix of percentages for a reasonable number of stockholders? Since you are smart enough not to get cought up in the S-Corp debaucle, you have no real limit ont he number of stockholders that could be in your company, but in reality, you probably won't have 100,000 stockholders. In fact if you are like most successful entrepreneurs, you won't have 10 stockholders. Could you get any mix of percentages for 10 stockholders out of 10,000 shares? I think so, so let's call that the lower limit.

In many states, fees create teh upper limit. For example in Nevada once you exceed $75,000 of par stock available (which could 75,000,000 shares at $0.001 per share) then the costs go up. So if incorporating in Nevada I would choose the maiximum shares available at no additional cost. Knowing that "Some Day". . . IF. . . I need to authorize more stock I could do it at that time.

In Illinois, from my brief review of the fee structure, I don't see an upper limit. Would 100,000,000 (100 million) shares be enough? Sure. Does it make your company any more valuable? No. Does it provide more capital? No. Will you impress the bank or a lender? no. Will intelligent investors think they are getting more for their investment? No, because intelligent investors understand the "Percentage thing".

Hope that helps.

Richard Fritzler
Nevada Corporate Services.
800 590-6612

[pseudonymo]

Find myself in same situation as original poster, and still a little unsure.

Couple of follow-up questions:

Each state usually has a fee structure tied to the number of shares or the total par value of the shares. In illinois it is tied to only the initial paid in capital. Should we have a high, or low initial paid in capital amount? I'd go with low. Since you are prepaying on $16,666 dollars of initial paid in capital, That might be a reasonable number of intended to be issued stock.

Prepayment on $16,666 dollars of initial paid in capital is determined by dividing $25 (minimum franchise tax) by .0015 (franchise tax rate).

Based on this,

Consideration to be received: $16,666
Shares proposed to be issued: 16,666
Shares authorized: TBD (>16,000)

However, if I'm the only director of the corporation, do I need to record this transaction & collect these funds to reflect the above?

How about enough shares to create almost any mix of percentages for a reasonable number of stockholders? Since you are smart enough not to get cought up in the S-Corp debaucle, you have no real limit ont he number of stockholders that could be in your company, but in reality, you probably won't have 100,000 stockholders.

If you don't mind me asking, what is the S-Corp debacle?

Thanks!