How many shares should I set aside for future issuances?
Q: How many shares should I set aside for future issuances to employees, consultants or advisors? And when should I put in place a stock option plan?
A: We get asked this question a lot. Typically, we form a corporation with 10 million authorized shares of common stock. The range of shares to be reserved under a stock plan for employees or other service providers is 1,000,000 to 3,000,000, with a standard of 2,000,000 shares for tech companies that plan to hire and grow quickly from the date of formation.
Any number of shares reserved within this range should be acceptable to your future angel and VC investors so long as you have a rational explanation for the number. For instance, perhaps 1,000,000 shares will be enough for your team of developers, advisory board members and other consultants for the first year or 18 months.
With regard to timing, if you plan to imminently retain consultants, advisors or other service providers and compensate them with shares at the outset, then most corporate lawyers would recommend that you adopt a stock plan at the time of formation. This plan would be included in a series of corporate actions typically approved by the initial directors in their first meeting, whether held as a meeting or approved by unanimous written consent.