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Swampthing :) do you think is a good idea to incorporate in DE with only 5,000 shares? that gives a minimum anual tax of $175.

The minimum tax for the Assumed Par Value Capital Method of calculation is $350.

you save $175/year and any time you wish or for example receive external investment you can do a stock split or authorise more shares.




I think it really depends on your situation, in terms of how likely you are to receive external investment like you mentioned (and when), and how much that $175 / year matters to you. By external investment, I think venture capital is probably the most relevant category - other types of investors may not be as insistent.

For example, amending the certificate of incorporation to authorize more shares is probably going to cost around $500 a minimum (and definitely much more if you use a lawyer). That's roughly triple the $175 in tax savings you get from authorizing 5,000. But of course by then, you probably would have already issued shares to people, so you would probably want to do a stock split. That's going to definitely require a lawyer... my guess is at least a few thousand in legal fees.

So it seems like it could make sense if (1) you don't plan to ever raise venture capital or (2) you think it'll be at least 3 years or so before you raise venture capital and you can hold off on issuing stock until then (unlikely to be a good idea). I suppose the analysis would also be affected by the time value of the $175 / year. E.g. how much more that $175 means to your company now than it will a few years down the line.


why would it cost $500 to issue new shares, its just a document you sign and put in your ledger. at least that's how my texas corp does it.

though i do agree, some of these small savings may or may not make sense depending on what you want to do in the future.


I'm not familiar with Texas law, but it seems likely that there's more to it than that... at the very least, you probably need board approval before issuing equity.

But in any event, I was referring to authorizing more shares under the certificate of incorporation - which is basically setting the maximum number of shares that the company can issue. That's a different process than issuing shares (though every time you issue shares, you should make sure you have enough authorized and available for issuance).


tank you very much for your detailed answer. Incorporating thinking ahead on the VC route do you think is a good idea to allocate prefered stock one or more series?


Most likely not - the rights and preferences of the preferred stock will get determined by the deal you negotiate with the VC, so anything you have before that will likely get thrown away anyways. It'd be very unusual to start off with preferred stock at formation.




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