Founder Share Allocation Calculator
How many shares should each co-founder hold at incorporation? Standard 10M-share Delaware model with option pool reserve.
Authorized shares
10M is the de-facto standard for Delaware C-corps.
Typically $0.0001. This is the legal purchase price for founder stock.
% of authorized shares reserved for future employee equity. 10-20% is normal at incorporation.
% kept as headroom for future authorizations and rounds.
Founder split
Share allocation
After you receive founder stock, you have 30 days to mail an 83(b) election to the IRS. Without it, you owe ordinary income tax on every vesting tranche as the company grows - potentially millions in unnecessary tax. With it, you only pay capital gains on appreciation.
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The standard founder share setup
Almost every Delaware C-corp starts with the same template: 10 million authorized shares at $0.0001 par value, with founders splitting some portion (typically 70-90%) and the rest reserved for the option pool and unissued capacity.
Why 10 million?
Three reasons: (1) divides cleanly across most founder splits (50/50, 60/40, 70/30, thirds); (2) gives meaningful precision for option grants - early hires might get 50,000 shares, which feels real, vs. 5 shares which feels absurd; (3) matches what lawyers, investors, and incorporation services expect, so nobody is confused at funding time.
Par value, not fair value
Founder stock is purchased at par value ($0.0001/share). For 6 million shares, you pay $600. This is the legal price - it's not the “value” of the stock. Founders pay par + actually deliver payment (check, wire) because the IRS requires consideration for stock to be valid. Pay it. Keep the receipt.
The 83(b) tail
Founder stock vests over 4 years with a 1-year cliff. Without an 83(b) election, you owe ordinary income tax on the FMV of each vesting tranche as it vests - and as the company grows in value, that becomes catastrophic. With an 83(b), you elect to be taxed upfront on the entire grant's value at incorporation (which is essentially zero), and any future appreciation is capital gains. You have 30 days from purchase. Don't miss it.
Reserved vs. issued vs. authorized
- Authorized: the maximum number of shares the company is allowed to issue per its charter (10M is standard).
- Issued: shares that have been actually handed to someone (founders, employees, investors).
- Reserved: shares earmarked for a specific purpose (e.g., option pool) but not yet granted to individuals.
- Unissued: headroom - authorized but not issued or reserved. Useful for future rounds.
Frequently asked questions
- How many shares should we authorize at incorporation?
- 10,000,000 shares is the de-facto standard for Delaware C-corps. It's a round number, divides cleanly across most founder splits, gives meaningful per-share precision when option grants are tiny, and matches what investors and lawyers expect. 1,000,000 also works but creates fractional-share awkwardness during dilution.
- How much should we pay for our founder stock?
- Almost nothing - typically par value ($0.0001 per share) times your share count. For 6,000,000 shares at $0.0001 par, that's $600. The point is to pay something so you actually own the stock and can file an 83(b) election to fix your tax basis at this low value. Pay by check, keep the receipt.
- Why does the option pool need to be allocated now?
- You don't have to allocate it day one, but reserving 10-20% of authorized shares for the future option pool means you have shares ready to grant when you hire. If you wait until you need to grant options, you'll have to authorize new shares (board approval, paperwork) which takes time. Reserving a pool up front is cheap and fast.
- What about the 83(b) election?
- Critical. You have 30 days from receiving your founder stock to mail an 83(b) election to the IRS. This locks your tax basis at the (very low) value of the stock at incorporation, so when shares later become worth millions, you only pay capital gains on the appreciation - not ordinary income. Missing the 30-day window is the single most expensive tax mistake a founder can make.
- Can we change the share count later?
- Yes, but it costs money and time. You can authorize more shares via a board resolution and state filing. You can do a stock split (e.g., 10:1) to multiply shares without changing ownership ratios. But it's far easier to start with the right number - 10M total - and avoid the headache.
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