Share classes define the structure of ownership in your corporation. Get them right at setup and every future issuance, transfer, and conversion flows cleanly. Get them wrong and you'll spend the weekend before a financing reconciling registers.
Authorized vs. issued: the distinction that matters
Every share class has two numbers that confuse founders the first time they see them:
- Authorized shares — the maximum number of shares the corporation is permitted to issue under its articles of incorporation. Think of it as the ceiling.
- Issued shares — the actual shares that have been issued to holders. Always less than or equal to authorized.
You authorize a large number at incorporation (typically 10 million for early-stage US corporations) so you have room to grow into without amending your articles every time you raise. You then issue much smaller amounts to actual holders.
Why this matters in Octelligence: the platform enforces the rule that you can't issue more shares than your class authorizes. If you try, the issuance is blocked until you increase the authorization through a board resolution.
Step-by-step
Go to Cap Table › Share Classes
From your corporation's workspace, click into Cap Table in the sidebar, then Share Classes. You'll see an empty list if this is your first time.
Add common shares first
Click New share class and fill in:
- Class name: "Common Shares" (or "Common Stock" in US jurisdictions)
- Authorized count: 10,000,000 is a common starting point for US Delaware C-corps. Canadian corporations often authorize an unlimited number.
- Par value: $0.0001 is typical for Delaware. Canadian corporations usually have no par value.
- Voting: One vote per share is standard.
- Class type: Common
Save. This becomes the default class for founder issuances, option exercises, and SAFE conversions later.
Add preferred classes only when you raise priced
You don't need preferred classes set up before you actually raise a priced round. SAFEs and convertible notes don't convert into preferred shares until the priced round closes. Wait until you have a term sheet, then add the class.
When the time comes, click New share class again with:
- Class name: "Series Seed Preferred" or "Series A Preferred" depending on the round
- Authorized count: calculated from the round size and the price per share negotiated in the term sheet
- Original purchase price: the price per share in the round
- Liquidation preference: typically 1x non-participating for early rounds
- Conversion ratio: typically 1:1 (one preferred share converts to one common at the holder's option or automatically at IPO)
- Voting: usually equivalent to the common share count on an as-converted basis
- Class type: Preferred
Review and lock
Before you issue your first shares, review the class configuration. Once shares are issued under a class, some properties (authorized count, par value) can still be amended but require a board resolution Octelligence will prompt you to record. Voting rights and conversion ratios should not change after issuance — investors rely on them.
Common patterns by stage
Pre-seed / pre-incorporation
One class: Common Shares. 10,000,000 authorized. Issue 8,000,000 to founders (1:1 split between two co-founders = 4M each). Reserve 2,000,000 for the option pool when you create it.
Post-SAFEs, pre-priced
Still one class: Common. SAFEs sit as outstanding instruments waiting to convert — they don't need their own class until conversion. See SAFE conversion for details.
Series Seed
Two classes: Common + Series Seed Preferred. Common holds founder and option-pool shares. Series Seed holds the new investor block. Original purchase price comes from the term sheet.
Series A and beyond
Add a new preferred class for each priced round (Series A Preferred, Series B Preferred, etc.). Each class has its own original purchase price, liquidation preference, and conversion ratio negotiated separately.
Voting rights and special terms
For most early-stage corporations, voting is straightforward: one vote per share, with preferred shares voting on an as-converted basis. But your term sheets may introduce wrinkles:
- Class voting: certain decisions (sale, new financing) may require approval of preferred holders voting as a separate class
- Protective provisions: investors get veto rights over specified corporate actions
- Drag-along and tag-along: these are governed by the shareholder agreement, not the share class itself, but Octelligence lets you attach the agreement to the class for reference
Octelligence records the basic class terms. For complex term sheets, attach the underlying agreement (Series Seed financing documents, certificate of designation, shareholder agreement) to the class so reviewers see the full picture in diligence.
Common gotchas
Authorizing too few shares. Authorizing 1,000 shares "because that's all we need" creates problems the moment you want to grant options or issue to a new hire. Authorize generously at incorporation.
Mixing par value and no-par jurisdictions. Delaware uses par value; most Canadian provinces don't. If you continued from one jurisdiction to another, set the class to match the current jurisdiction.
Creating a preferred class before the round closes. If you set up Series Seed Preferred before the term sheet is finalized, you may have to amend the class once the actual price per share is locked in. Wait until you have signed documents.
Authorizing preferred without a board resolution. Adding a new preferred class typically requires a board (and sometimes shareholder) resolution. Octelligence will prompt you to upload or record the resolution when you create the class.
Background reading
If you're new to the mechanics of share classes and want the bigger picture, two blog posts cover the conceptual ground:
- Cap Table Basics for Founders — what belongs on a cap table and what doesn't
- What Goes in a Stock Ledger — how the share register backs your cap table