Setting Aside Shares

I give a lot of presentations on incorporation and organization at universities. One time, one of the students present had a great question about shares: “how do you know how many shares to issue to the founders and how many do you set aside for future financing rounds?”

Great question. Now let’s debunk a myth about “setting aside shares”. This does not actually exist. That’s right – you read it correctly. Setting aside shares is pure fiction… At least it is 9,999 times out of 10,000. The issue of setting aside shares only really comes up if you have a limited number of shares you can issue under the articles or the company. But why would you ever, EVER, limit the number of shares you can issue?! Makes no sense to do that in a startup – at least not at the beginning…

When you incorporate, your lawyer will (rightfully) recommend a plain vanilla share capital to start with, i.e. common shares, of which an unlimited number may be issued from time to time by the board. Voilà! No need to set aside shares. You’ll issue them as you go.

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