When you are incorporating, your company needs to determine what number of shares of stock they are going to authorize. This number represents the total number of shares that the company could issue out to shareholders. You do not have to issue all shares authorized; that way, you have the flexibility to add more shareholders at a later date.
For example, a corporation with three owners may decide to authorize 1,000 shares and issue 250 shares to each owner (750 shares issued). This leaves 250 shares to issue to future investors or partners. If the corporation later wants to change the number of authorized shares, it can do so by filing an amendment to the articles of incorporation.
As noted in the example above, when stock is purchased by an investor, it is considered to be "issued." When reporting issued shares, your company is reporting the total amount of stock that is held by investors.
Par value means the stated dollar amount per share. For example, if the par value is $2/share, then the corporation should receive $200 when it sells 100 shares of stock to an investor. You have two choices when it comes to par value:
- State a dollar amount per share
- Declare that the shares are to be without a stated par value. These shares will be issued for an amount as determined by the board of directors.
For-profit and professional corporations may choose to issue more than one class of shares (e.g., Class A, Class B). Each class carries different rights and privileges, such as voting rights.
Corporations that issue stock classes may further classify them by series. Shares consist of more than one series, for example, Series A Preferred Shares.