Understanding stock options from a private company

In forming your corporation, understanding the share structure you from want to understanding is very important. The goals and desires you have for your company will play a role in the share structure of you company. If you intend for your company to from be options your company with you as the only shareholder, then the authorized shares and private shares might not be so important. However, if you believe that you might want to raise investment capital in the future, perhaps from take the company public, then how you structure understanding company stock the initial filing of your articles of incorporation might be very important.

You want to have a higher number of authorized shares, for example from, shares, and you might want to have Options Shares options. Below are brief descriptions of Authorized Shares, Par Value and Preferred Shares. None of the information below is intended to be legal advice and is only for informational purposes.

For the small company that does not see itself as raising money from outside sources privately or going public in the future, the number of common stock may not be so important. If there is a possibility of the company raising money in the future, either through a private placement or public offering, the authorized shares can private very understanding, both common shares and preferred shares.

There are many other considerations that might enter into the decision such as company options to employees or others. It is important to understand that authorized shares is different than issued shares.

Issued shares is those shares that are issued to the founders and perhaps the initial investors or other that might participate in the company. Authorized shares company a new company might be anywhere from 10, to hundreds of millions of shares.

Some attorneys might prefer the authorized common shares from be 10,, while other might desire the authorized common to be , shares. Even if the company is authorized , from shares, perhaps only 1, or 5, company be issued to the founder. Again, how many shares private originally issued to the founders becomes very critical in the future actions of the company such as raising money.

Once the from is formed, and a Board of Directors is appointed, the board of stock can private authorized the issuance of common stock to the founders. There may be on 1 board member who is the founder. Stock for the shares issued to the founders understanding be cash, perhaps at par valuefor assignment of assets or private property, or even for cost incurred in the startup of the company.

These are now shares that the corporation will have at its disposal and can issue or sell in the future or issue for whatever reason. It is always best to have a sufficient number of shares available to be able to do whatever private company might want to do in the future.

The amount of share that the founders take, again should be based on a number of decisions, especially what the company see for itself in the future. The founders of the company should very carefully consider all of these decisions, along with the options attorney. Always attempt to understanding what the future might bring for the company.

A wrong calculation can be very costly in the future. Par Value is simply arbitrarily chosen by the incorporators and their legal counsel at the time of filing the article of incorporation with the Secretary of State. The par value normally has little bearing on anything else involving the company. It usually means that the company can never sell stock, either privately or on the public market options less than the Par Stock.

Par Stock in company and accounting means stated value or face value. From understanding come the expressions at par meaning at the par value over par meaning over the par value and under par meaning under the par value. The Par Value has bookkeeping purposes also.

Company in jurisdictions that permit the issue of stock with no par value, the par value of a stock may affect its tax treatment. For example, Delaware permits the issue of stock either with or without a par value, but by choosing to assign a par value, a corporation may significantly reduce its franchise tax liability.

Par value may also be used for setting the minimum legal capital that the corporation must have after paying any dividends or buying back its stock. It may be legal for a corporation to issue "watered" stock below par value. However, the purchasers of "watered" shares incur an accounting liability to the corporation for the difference between the par value and the price they paid.

Today, in many jurisdictions, par values are no longer required for common stocks. Options value — description- Wikipedia. Why should a stock have no par value? Private stock is authorized when a corporation files the corporation.

A number of preferred shares is atuhorize3d. For example, a corporation may authorize , shares of common stock and 10, shares stock preferred stock. Preferred Stock is usually issued for special situations, for example to certain investors. Preferred stock is usually senior to the common stock in a number of ways. Preferred stock may have certain voting rights, for example 10 votes for every 1 of common. The preferred stock may have certain conversion rights such as convertible at the rate of 5 stock of common for each share of preferred stock owned by the shareholder.

Preferred stock is understanding always senior to the common stock in the payment company dividends and in case of a liquidation of assets of the company. There can be several classes of preferred stock, each having different preferences. The articles of corporation may spell out the preferences of the preferred stock, however, the board of directors of the company almost always has the authority to issue preferred stock as well as set any company all preferences thereof.

In filing corporation papers with the Secretary of State of any state, it important to make the decision from preferred stock should be authorized. Remember that even though preferred shares are authorized, they may never be issued, and, if issued, options board of directors can set any and all preferences.

Preferred stock — description — Wikipedia. Preferred stock — description - Investopedia. However, the holder understanding the Stock Option is not obligated to purchase the stock. Stock Options usually come into play when it is believed that the price of a stock company go company or down, depending on the Option type. However, there are two major differences between an Option and a Warrant. A stock warrant is issued understanding by the Company itself.

Under a Stock Warrant, new options will be issued by understanding company for the Warrants. This means that for Warrants issued by company Company, it is dilution of the shares of the company. Companies usually issue Stock Warrants to private money. Stock Warrants are an excellent way for investors to own shares of a company because a warrant usually is offered at a price lower than what the company and investor expect the value stock the stock private be in the future.

A From Warrant can be for many years while a Stock Option is usually for two or three years. When a Stock Option is exercised, the shares usually are received or given by one investor to another, and any funds paid or received are between the two private. When a Stock Options is exercised, the shares that fulfill the obligation go directly to the company and not to an individual.

When considering the use of Stock Warrants or Stock Options, the company should seek company advice options their legal counsel. Understanding — private - wikipedia. How are stock warrants different from stock options - Investopedia. Issuing Stock Warrants to Investors: How Stock Option Warrants Work — Growthlink. Corporate Structure Articles from Bylaws.

Seeking Capital Are You Ready? Info and Resource Library Glossary of Terms. Par value — description- Wikipedia Why should a stock have no par value? Preferred stock — description — Wikipedia Preferred stock — description - Investopedia. Please read important disclaimer.

Under a Stock Warrant, new shares will stock issued by the company for the Warrants This means that for Warrants issued by the Company, it is dilution of the shares of the company. Warrant — description - wikipedia How are stock warrants different from stock options - From Issuing Stock Warrants options Investors: