A company Stock Options could be referred to as a form of compensation. A company can grant employees, contractors, consultants and investors Options for time spent in their service. These Options are like contracts which give employees the right to buy company Stock Shares at a pre-set price, also known as the Grant Price. So a new employee needs to know if the company, the employer, offers Options or Shares, or both. If you’re a new employee, you need to do some research and find out which would benefit you the most.
Stock Shares is when a company grants shares to a new employee, after working for a certain time. An employee is granted a number of shares after they’ve worked for the company for a period of time. Only after completing the required time, will the employee be eligible for the allocated shares. Whatever the value of allocated shares at the start of employment, that value remains the same. when the shares are granted to the employee, regardless of whether the market value has increased or decreased.
If you choose to buy Shares, which will be issued in your name as soon as their purchased, these will be on the share register. You will then be able to sell or transfer these Shares, subject to terms and conditions set out by the company. The value of these Shares can increase, decrease or remain unchanged, depending on their market value. In the end, it is a risk you take, especially when you choose to transfer or sell at market value.
If you choose Options at the start of your employment with the company, you will have to wait until you are able to buy shares at the agreed Grant Price. The Grant Price is a set price, regardless of their market value. You’ve got nothing to loose, but it might be disheartening to find out that shares have decreased in value but you’re stuck with a set price. If however, shares have increased in value, the Grant Price will be like a bargain. Something to think about.
You need to research in order to make an informed decision before you make your choice. Find out for instance, how many shares you’re entitled to, once you are able to buy shares. How is the market trending? If your company uses vesting as an incentive, you could earn assets when you retire. Corporate lawyers can also be a great way to help you make an informed decision and review your contract and explain the jargon. Please get in touch for an informal discussion. SG
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