How many shares should a startup issue to its founders?
Written by For Founders Law, a Toronto firm licensed by the Law Society of Ontario. About us
Short answer
Ontario and federal corporations can authorize an unlimited number of shares, so the question is how many to issue. Many startups issue founders several million shares at a nominal price, which keeps the total cost small and leaves room to grant options and sell shares to investors in sensible numbers. The count itself doesn't change anyone's percentage; the split does.
Authorized vs issued: what’s the difference?
Authorized shares are the maximum the articles allow. Issued shares are the ones actually held by someone. Section 6 of the CBCA lets the articles set a maximum number for each class, or none, and Ontario’s Business Corporations Act works the same way. Most Canadian startups authorize an unlimited number of each class, so they never need to amend the articles just to issue more.
Ownership percentages depend only on issued shares. If two founders each hold 5,000,000 of 10,000,000 issued shares, each owns 50%, whether the articles allow 10 million or unlimited.
Why issue millions instead of 100?
Because you’ll need to divide the company finely later. Options for a first employee, a small advisor grant or a SAFE conversion are much easier in whole numbers when there are millions of shares. With 100 shares, a 0.25% option grant is a quarter of a share. Shares can be split later, but that’s an extra step and approval.
| Issued to founders | 0.25% grant later | Price per share at a nominal $100 total |
|---|---|---|
| 100 | 0.25 shares (impractical) | $1.00 |
| 1,000,000 | 2,500 shares | $0.0001 |
| 10,000,000 | 25,000 shares | $0.00001 |
The table is illustrative. There’s no legally correct number.
What price do founders pay?
Usually a nominal amount, because the company has little value at incorporation. Under section 25 of the CBCA and section 23 of the OBCA, shares must be fully paid before they’re issued, in money, property or past services. Founders typically pay a small cash amount, recorded in the subscription agreement and the directors’ resolution.
Timing matters for tax. Shares issued at a nominal price when the company is new are easy to justify. Shares issued at a nominal price after the company has customers or investment can create a taxable benefit. Talk to an accountant before issuing founder shares, and before issuing more later. If a founder contributes existing IP or a business instead of cash, a section 85 rollover may be needed; see should I set up a holding company?
Should founders get a special class of shares?
At the start, most companies issue one class of common shares to all founders. Investors at a priced round usually buy preferred shares. Some companies create additional classes for tax planning or non-voting employee shares; each extra class adds cost and needs to be set out in the articles.
How do I record it?
- Founders sign subscriptions and pay.
- The directors pass a resolution issuing the shares.
- The securities register and cap table record each holder.
- Vesting terms go into a share restriction agreement or the shareholder agreement. See founder vesting.
Our incorporation fee starts at $600 and includes articles with one class of shares and the founder share issuance; more than one class moves the price. See fees.
This guide is general information about Ontario and Canadian law, not legal or tax advice for your situation. To set up your share structure, book a free 15-minute consult.