Just how many shares should you authorize when starting a company in South Africa. This is a dilemma that a lot of entrepreneurs find themselves in. This is a guide on how to structure your company shares when starting out.
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What are shares?
Shares are units of ownership; each share represents a percentage of ownership of the company. Most people tend to think in terms of percentages, it’s not uncommon for an entrepreneur to think “I will sell 5% of the company”. But how exactly do you get to that percentage when valuing your company; you do that using shares.
How many shares should be authorized?
You can authorize as many shares as you want, the minimum number being 1, there is no maximum number within reason. I wanted to issue 20million shares when I was registering my business at the CIPC, with a goal of getting each share to be R1. I mistakenly authorized 200million shares, but that’s also fine.
Authorize as many shares as possible (within reason), especially if you are planning to sell some of them during the course of the company. The main disadvantage of issuing a lot of shares is that the price of each share becomes extremely low, that’s why some company shares are only worth some cents.
The number of shares you want to issue ultimately depends on you. Do you have any thoughts or questions? Comment below.