What You Need to Know About Splitting Equity

An article we liked from Thought Leader Matt Preuss of Visible.vc:

How to Fairly Split Startup Equity with Founders

Options vs Shares

What are options? 

Note: When determining your startup equity structure, we recommend consulting with your lawyer.

Investopedia defines employee stock options as, “a type of equity compensation granted by companies to their employees and executives. Rather than granting shares of stock directly, the company gives derivative options on the stock instead. These options come in the form of regular call options and give the employee the right to buy the company’s stock at a specified price for a finite period of time.”

What are shares?

As defined by Investopedia shares are, “Shares are units of equity ownership interest in a corporation that exist as a financial asset providing for an equal distribution in any residual profits, if any are declared, in the form of dividends. Shareholders may also enjoy capital gains if the value of the company rises.”

Main differences that a founder should know

Options and shares are closely related. Ultimately an option gives the founding team the “option” to buy shares at a set price at a later date. When determining how to split up equity among your early team and founders remember that it can be a tool to...

Read the rest of this article at visible.vc...

Thanks for this article excerpt to Matt Preuss of Visible.vc.

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