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It is my understanding that many tech startups form their C Corp in Delaware and issue 10 million common shares for various reasons.

My question has to do with Par Value per share. Most startups seem to issue each share at $0.0001 which equates to $1000 in this scenario. Since this price has to be paid in real money ($1,000) my question is what is the least amount Delaware allows the par value of a share to be?

For example, could one issue their 10 million common shares at $0.00001 instead of $0.0001? This would total $100 rather than $1000 of which I am assuming has to actually be paid to the corporation. Assuming there are no assets, no IP yet, no funds raised yet, nothing of worth to the new corporation, what is the minimum the state of Delaware allows the par value of a share to be? Is there one?

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2 Answers

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  1. Par value is not subject to restriction by the state. Very low par value, such as you have suggested, is permitted.

  2. However, in DE par value does have an effect on the franchise fee that is payable. Please see In Delaware, No-Par-Value Can Cost a Bundle.

  3. Yes, when shares are issued, (at least) par value must be paid. However, there is no requirement that all authorized shares be issued. Your objective (low capital investment) can be accomplished by reducing the par value or by reducing the number of shares issued. Indeed, depending on the corporation's plans, it may be advantageous to have unissued shares.

  4. A potential danger with too small a capital investment, however, is a foundation for imposition of unlimited personal liability. Please see Beware Your Alter Ego.

  5. The fact that you have asked this Q suggests that it would be prudent for you to retain the services of both a lawyer and a tax advisor.

Disclaimer: This information does not constitute legal advice and does not establish an attorney-client relationship.

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I can't give you a direct answer, but I know when I researched my company poking around the secretary of state websites is your best resource. You can get to the laws of forming a corporation from there. Go to Deleware and click on the "Deleware Laws Online". You are looking for information under the Title 8 section of the site. It will have general guidelines and should indicate your max stock issuance, stock types, and min values.

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