Share Options

[knowsey]

I'm currently doing sales and consultancy work through my Ltd. Co. under a 'man day' contract for a new company (incorporated April 2020.) My current contract expires end of next month and things appear to be going reasonably well, although we have no clients yet, we are getting close. I know right now there are 2 owners/co-founders who have 66/33% equity split and they have mentioned going for some round(s) of funding shortly. I was just told they want to discuss making things more permanent with me in a sales role next week to discuss share options. I imagine this will also cover salary, commission which I have experience in but its the share area I'm in the dark!

I wondered what things I should be looking out for and what questions I should ask. (I also know they are about to get advanced assurance under the EIS government scheme )

Hope someone can offer some pointers :-)

Thanks

[northernladuk]

Start with the fact start up failure rates are around 90%

And IR35 if you switch from contract to perm...

[Lance]

share options are just jam tomorrow

If the business is worth f*** all why don't you offer to buy 10% of the shares so you have a stake? You'll have to pay a premium but it helps fund the business.
If they say no, you know what they value your input at really.

[edison]

Start with the fact start up failure rates are around 90%

And IR35 if you switch from contract to perm...

What NL says - many share options never turn out to be worth much, if anything, in reality.

However, this is a potentially complex area so perhaps you should seek professional advice. I'm no expert but some things off the top of my head that spring to mind:

I assume the company is still very small and not formally listed on an exchange so how will shares be valued? What is the mechanism for buying/selling shares and vesting any options?

Are you a key individual and would there be a lock in period at all?

What happens if the company really takes off and seeks further rounds of VC funding for example? How will you avoid dilution of your shares or options? The film The Social Network about the early days of Facebook were based on exactly this where founder Mark Zuckerberg tried to screw one of his co-founders out of a large chunk of his shareholding - see How Mark Zuckerberg booted his co-founder out of the company - Business Insider

This might be a useful guide for you aimed at small UK startups: A small business guide to share options | Startups.co.uk

Good luck - just don't end up like Ron Wayne who was the third person at Apple and sold his 10% share for $800. That would be worth close to $250 billion today...

[northernladuk]

And isn't there something about not having enough shares to influence voting so you the OP is at the mercy of the other two if things get tough.

[Lance]

And isn't there something about not having enough shares to influence voting so you the OP is at the mercy of the other two if things get tough.

yeah. That as well. Good call. Need to make sure they are below 75% so they can't shaft the minority shareholders.
Although if they are seeking funding any sensible investor will make sure that it dealt with so maybe less of an issue for the OP.

[eek]

Point them at Vestd and tell them to set up a decent share option scheme.

[edison]

And isn't there something about not having enough shares to influence voting so you the OP is at the mercy of the other two if things get tough.

Yes, there may be different classes of shares with different voting rights. IIRC Zuckerberg at Facebook and Brin/Page at Google had classes of shares which gave them much more voting power.

[northernladuk]

Yes, there may be different classes of shares with different voting rights. IIRC Zuckerberg at Facebook and Brin/Page at Google had classes of shares which gave them much more voting power.

I just meant with him having a minority stake rather than share types. I'd seriously hope they won't be buggering about with different classes.

[Lance]

I just meant with him having a minority stake rather than share types. I'd seriously hope they won't be buggering about with different classes.

it's quite common for share options. Allows the actual owners to promise the earth and provide **** all.