When you form a corporation, you decide how many stock shares your company can lawfully distribute. But what if you want to distribute more? Here’s what you need to know about increasing your corporation’s authorized stock shares:
What are authorized stock shares?
Authorized stock shares are the total number of shares that a corporation can issue. This includes restricted shares (which are typically reserved for employees as a form of compensation), and not-yet-purchased shares (known as “float”). When you form a corporation, you’re required to decide on the number of authorized stock shares you company will offer.
How does authorized stock differ from “par value”?
While the number of authorized stock refers to the actual number of shares a corporation can distribute, “par value” refers to the initial value of each share. “Par value” is not a significant concern for most corporations, since it doesn’t actually affect a stock’s market value. In fact, many companies list very low par values (i.e. $0.00001 for Apple stock), which just means shares cannot be sold for less than the par value amount during the company’s initial public offering.
“Par value” requirements differ state-to-state, with some states not requiring it at all. To learn more, check out Northwest’s page on How to Change Your Corporation’s Stock Par Value.
Can corporations authorize additional stock shares?
Yes. Your corporation’s authorized stock is determined by your Articles of Incorporation. To change the amount of authorized stock shares your company can offer, you will have to file anAmendment to Articles of Incorporation.
HOWEVER, it’s important to know the consequences of authorizing more stock shares before you do. In brief, increased stock means increased capital—yay! At the same time, creating more stock means all existing shareholders suddenly own a smaller percentage of your company, which can decrease shareholder value. It’s a good idea to consult with a business attorney if you’re considering changing your authorized stock shares.