If you’re a startup, every dollar counts and represents your runway; the line between life and death. Save a couple hundred dollars probably doesn’t determine if your business will succeed or fail, but do it a few times and that might add up to something substantial.
Here’s the nugget of wisdom promised in the title – when you incorporate, the number of shares you choose to authorize change your annual franchise tax bill substantially. If you don’t think you’ll be changing your cap table anytime soon, it might be a reasonable idea to authorize the fewest number of shares necessary.
The cutoff line for the # of shares necessary to pay the lowest amount of franchise tax is 5000. Perhaps authorizing 5000 and issuing smaller numbers is possible for your situation.
There are two possible ways to calculate – the authorized shares method or the par value method. Issue a low number and you can use the authorized shares method bottoming out at $175. If you issues a larger number you’ll have to use the par value method which has a minimum $250 bill. For instance, lets say you authorize 10 million shares. You’ll be stuck with a $400 bill assuming the company is worthless. If the company actually is valuable, the calculation will change.
Here’s a handy calculator: https://www.delawareinc.com/delaware-franchise-tax-calculator/