The total number of shares a corporation is authorized to issue, representing ownership in the company—includes both common and preferred stock.
What is Capital Stock?
Capital Stock refers to the total amount of shares that a corporation is legally allowed to issue to shareholders, as specified in its Certificate of Incorporation. It represents the ownership structure of the company and is divided into one or more classes, typically common stock and preferred stock. For non-U.S. residents operating U.S. corporations, capital stock is a foundational concept that defines how ownership is distributed, how control is exercised, and how investors participate in the company’s future growth.
When a U.S. corporation is formed, the founders must decide how many shares of capital stock the company is authorized to issue. This number is declared in the formation document filed with the Secretary of State—often Delaware or another business-friendly jurisdiction. The corporation can then issue some or all of these shares to founders, investors, or employees in exchange for money, services, or assets. The authorized shares are the maximum the company can issue without amending its charter, while issued shares are the ones actually granted to owners.
Capital stock can be structured in various ways. Common stock typically gives shareholders voting rights and access to dividends and equity upside. Preferred stock, often used in investor rounds, may offer special rights—like priority in dividends or liquidation, anti-dilution protection, or the ability to convert into common stock under certain conditions.
For tax and legal purposes, capital stock is also used to determine ownership percentages, voting power, and profit distribution. Issuing stock must be documented carefully through stock certificates, a cap table, and board resolutions to ensure regulatory compliance—especially if you plan to raise funds or work with U.S. investors.
In many states, including Delaware, the amount of authorized capital stock also affects the franchise tax calculation. Companies with large numbers of authorized shares may face higher taxes unless they file under the alternate “assumed par value” method.
In summary, capital stock defines the ownership of a U.S. corporation. For non-U.S. founders, understanding how to structure, authorize, and issue capital stock is essential for equity management, legal compliance, and attracting future investment. Proper planning and documentation from the start will make everything from fundraising to exit far smoother.
