Should you subscribe to all authorized shares at incorporation?

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You can but you don’t have to. Authorized Shares is the maximum amount of shares of stock a startup can issue.

Therefore if you incorporate a company with a Nominal Capital of Ksh 1,000,000 at cost per share of Ksh 100 then the amount of shares available for distribution is 10,000 shares.

These 10,000 shares are referred to as Authorized Shares. Every shareholder can have a percentage of the 10,000 shares.

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But should you? There are a couple of reasons you might not want to:

  1. Additional Founders/Shareholders
  2. Outside/3rd investing

To accommodate these two you need to think about issuing only issuing 50-80% of authorized shares.

Therefore for the 10,000 shares, the shareholders split among themselves 80% of the 10,000 shares and leave 2,000 shares up for grabs later. The 2,000 shares are referred to unissued shares.

While you can always authorize additional shares, upon appropriate board and stockholder consent and government filling, keeping a good-sized reserve of unissued, but authorized shares means that you will not have to incur the transaction costs associated with increasing the authorized shares.

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