Final answer:
The number of shares to authorize for a new corporation should be determined by business needs and future activities, not only by initial factors such as the founders or investors. It involves preparing for growth, equity financing, and decision-making structures. The specific number should allow for flexibility in corporate governance and financial strategies.
Step-by-step explanation:
The number of shares a new corporation should authorize is an important decision and is determined by the business needs and potential future activities of the company rather than simply by the number of founders, projected earnings, or potential investors alone. When deciding on the number of shares, it's important to consider the future growth of the company, the need for additional equity financing, and the dilution control for the founders and early investors. Moreover, the authorized shares should enable flexibility for issuing stock to employees, as well as potential stock splits and dividends.
When a large number of shareholders own a company, key considerations include how and when the company obtains money from its sale of stock, the rate of return promised to shareholders, and the governance structure, specifically who makes decisions in the company. If we take the Darkroom Windowshade Company with 100,000 shares of stock outstanding as an example, a majority stake is needed to change company management. Investors 1 and 2, with 20,000 and 18,000 shares respectively, could control votes if they agree to work together, having a combined 38% of the company - although this alone does not assure they will always get their way as they would need over 50% for a majority.