When you start a company, the choices you make surrounding shares and shareholders is going to significantly influence the future and direction of your company. So, when you form a company you’ll need to ask yourself a number of important questions regarding shares.

One of the most integral questions will be, how many shares should my company start with?  

Ultimately, there’s no standard answer to this question. The amount of shares your company starts with will depend on a number of different factors – the key is to make an informed decision that will be beneficial to your company in the long run. 

As such, it’s critical to understand everything you can about how shares work before you take the leap and launch your company. Keep reading to learn more. 

What Are Shares In A Company? 

Shares in a company are essentially the ownership of a company. Each share is a unit of ownership and anyone that owns a share is known as a shareholder. 

The higher the shares someone owns, the more ownership they have in the company. Shareholders have certain rights such as voting powers and can influence the direction of the company. Needless to say, larger shareholders will have more say in the company than smaller shareholders. 

Every company is likely to have their own set of rules and expectations for shareholders which can be found in legal documents like a Shareholders Agreement. If you’re starting a company and there’s going to be more than one shareholder, then it’s a good idea to get a shareholders agreement drafted. 

For a company to run smoothly, it’s important for the shareholders to be on the same page as one another. Shareholders agreements cover important matters such as dispute resolution, decision making processes and what happens when a shareholder wants to exit the company – it’s a pretty essential document when it comes to your company’s governance, be sure to get a legal expert to help you out with yours. 

How Many Shares Does A Company Have? 

There isn’t a specific amount of shares every company has. Some companies have hundreds of shareholders (these are usually largely corporations) while other companies may have just a few shareholders. 

The number of shares a company has is never random. A company’s size, strategy, structure and needs will play a significant role in determining how many shareholders it has. 

We’ve written more about companies and shares in our article, How Many Shares Can A Company Have? Check it out to learn more.  

How Many Shares Should I Start My Company With? 

Determining the amount of shares to start your company off with should be planned in accordance with matters such as your company’s future goals, structure and current availability. For instance, if you want to raise capital with investors however, your company is still in its early stages then it’s important to structure your shares in a way so it makes room for future shareholders. 

Typically smaller companies start off with shares of 1,000 to 5,000. These numbers are a lot more manageable and make it easier to succinctly determine ownership percentages. Moreover, those numbers are sufficient enough to be able to meet the needs of many smaller companies. 

Additionally, the number of shares you decide to issue may also be influenced by the number of founding shareholders. A key consideration in this decision is ensuring that the mathematics of share distribution makes sense. For instance, issuing 1,200 shares can be particularly effective if there are multiple founders or early investors, as it is a number that’s easily divisible by many common shareholder counts. This divisibility (1,200 can be evenly divided by 1, 2, 3, 4, 5, 6, 8, 10, 12, 15, 20, 24, 30, 40, 50, 60, 100, etc.) allows for a wide range of potential ownership structures, accommodating various investment amounts and reflecting each party’s contribution accurately. Such a setup not only simplifies the calculation of ownership percentages but also helps in maintaining clarity and fairness in financial agreements. By tailoring the share structure to accommodate the initial group of shareholders, you pave the way for smoother management and operational processes as your company grows.

So, when you’re figuring out how many shares you should start your company with, it’s important to make the choices that are right for you. As your company is unique, it’s best not to look at other companies for some type of blueprint. Instead, it’s best to chat with a legal expert – that way you can get advice that’s catered especially to your company’s needs and go from there. 

Can I Change My Company’s Shareholder Details? 

Yes, you can and should be changing your company’s shareholder details. If a shareholder decides to leave or has any important details about them changed, then it’s important to update these details with the Australian Securities and Investments Commission (ASIC).

Remember, as a company it’s your duty to report to ASIC and ensure all your company details are up to date with them. Not doing so can lead to fines and in worst case scenarios, your company being investigated by ASIC and facing legal penalties. 

Don’t let this happen – make sure you update any important  shareholder details as soon as they occur. Often, navigating ASIC and knowing which form to fill out can be overwhelming! Having a legal professional in your corner can make this process much easier as they can make certain that everything gets done the right way. 

Next Steps

When figuring out how many shares to start your company off with, it’s important to consider a number of different factors. It’s wise to get the professional help of a legal expert to ensure you’re giving your company the best start possible.  

  • The number of shares a company starts with varies based on multiple factors including future goals and company structure, with no standard initial amount applicable to all companies
  • Shares represent ownership units within a company, and shareholders possess varying degrees of influence and voting rights based on the number of shares they own
  • Larger shareholders typically have more influence over company decisions than smaller shareholders
  • It’s beneficial for companies, especially those with multiple shareholders, to draft a Shareholders Agreement to outline rules for governance, including dispute resolution and decision-making processes
  • Common starting share quantities for smaller companies range between 1,000 to 5,000 to easily manage ownership percentages and meet operational needs
  • Shareholder details need regular updates with the Australian Securities and Investments Commission (ASIC) to avoid legal penalties, with legal assistance recommended for navigating updates
  • Consulting a legal expert when starting a company and determining share distribution can provide tailored advice and help ensure the company’s long-term success

If you would like a consultation on how many shares your company should start with, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.

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