If you are an employee working in the industry, you might want to know the shares that you can get from startups. It may seem confusing for many, but once you get the idea what shares in startup mean, you will suddenly feel like quitting your job now and look for lucrative startups.
The shares in startups are applicable for employees that are working for startup companies. It is widely known as Stock Option Plans, which is the most popular way of attracting employees to work with the company even if it is still a startup. But there is another purpose for offering the Stock Option Plans – that is by motivating and keeping the employees work in the company for long. This is the most effective method for companies that find it difficult to pay their employees with high salaries. This plan provides the company flexibility in awarding stock options to its staff whether they are regular employees, directors, officers, consultants and advisors. It will allow them to buy the stocks of the company if they choose to go with this option.
The Stock Option Plans also allow the employees to share in the success of the company without the need to put up a startup business wherein they spend their cash, mostly a part of their life savings. This can contribute to the capital of the startup company, which is a requirement that the employees need to do if they wish to go with this option.
Disadvantages of Shares in Startup
Not all that is good is without the bad. The disadvantage is that the company is the possibility of dilution of the equity of the shareholder when the employees go for the stock options. The main disadvantage that the employees will face is that of it being a private company having the lack of liquidity, which is something non-existent in greater compensation or cash bonuses. The stock options will not be equal to the cash benefits unless the company makes a public market for the stock it carries or when they acquire it. The stock options will eventually become worthless when the company does not grow, and the stock in the market does not become more valuable.
How to deal with shares in startups
There are ways that you can effectively work with stock options with startup companies. The classic side of these things is the choice to buy a share of the stock at a specific price. Take, for example; you get to purchase a couple of shares worth a penny each. If these shares are worth more than the penny you pay for, you get to make money. This is how it is written in theory.
Also, you need to understand the basic numbers of shares in the company that you work for before you take on the stock options. Charters show the number of shares the company has, and if you get to know the number, then you can get an estimate of the share that is worth by dividing the worth of the company according to the number of shares outstanding.