stock, restricted-stock, stock-options, employee-compensationI realize that, for small software startups, the future is by far the most compelling incentive. Namely, the goal of making a platform or application that is eventually bought out by a major company, due to its attraction of users etc., which provides a vision for each shareholder - monetization.
As a founder, my company is currently an S-Corp, and we have a few employees working on W2s. The other founder and I got together and mapped out Common Stock (Hard, Founder’s Equity), but we have about ten other people helping us with various tasks, and we want to formalize their contributions with paper.
Since our company is still at zero revenue, which makes more sense?
Granting stock options that vest over time, or restricted stock? Our par value per share is still negligible, so something makes me think that stock options are favorable.
Bonus points - What’s the real difference, and why is the standard practice for large corporations to use restricted stock (and by extension, when does a company become large enough that they make this transition - an IPO?)
Thanks for your time.
I would go with restricted stock. It allows you to put certain criteria on your stock that must be met before it is released including a vesting time frame. So instead of just an investing timeframe you can add additional criteria the must be met before it is released.
It is a very common situation that within a year quite a few people in the start up would have given up and gone and you don’t want them taking stock with them. Start ups are a hard game and many don’t have the grit for it. If you give stock it needs to come under very heavy conditions initially in my opinion and make sure that they are in it for the long term and contribute significantly for it.
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