Number of shares for a newly established online services company + stock options?


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Following up on the recent question about diluting the stock in this board, I would like to find out more about what do you recommend is a standard number of shares to issue for a new star-up.

To be honest I am not very clear about what is the typical number of shares that a company should start with - benefits or drawbacks, how many shares is common to keep and how many is common to offer to investors or new shareholders that you take on board.

I always work with % of the shares and never with the actual share numbers. I think its important to understand these as well, in case we need to dilute stock in the future.

  • What do you think is the most desirable amount of shares to begin with?
  • Do you know about any external source explaining this in the easy to understand way?
  • If you start up an online services business, how much stock do you think you should keep if you want to keep a majority stake in your business even in the future considering you have no actual co-founders, only people you took on board in the process that may take minority shares? What would be a good number to offer? Is 7,5%/person a good number to offer considering they are not a founding members but somebody you originally hired as contractor to help with your product development?
  • Can you please also explain the term "stock option" as in is there any difference to "common stock"? I always though stock option is in other words giving up part of your business to the employee with voting rights and everything (common stock). Is this correct or is stock option somehow different from common stock with voting rights? If you offer stock options is this reflected in the "company shareholders report" or only common stock holders get reflected in this?

Sorry if my questions sound silly, but to be honest I'm a little confused by this topic and like get my information straight, Thanks

Getting Started Web Services Shares

asked Sep 23 '11 at 16:00
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Peter K.
194 points

1 Answer


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Two places you should spend some time are:
Forming a new software startup, how do I allocate ownership fairly? and

http://www.investopedia.com/ I think the number of shares doesn't matter. Just pick something that is easy enough to divide. 100 shares at $1 million each is fine, if that works for you. If you need $1 shares, then you should issue 100 million shares. Look at Berkshire Hathaway's stock price. Percentages matter, number of shares does not.

Employee stock options are the option to buy stock at a fixed price within some period (say 10 years) and usually this right 'vests' over a number of years. That is, you issue someone options on 1,000 shares at $10 they get 25% of those each year so they get all of the options over four years. You can grant more each year this way but the idea is the employee loses a lot when they leave - kind of like golden handcuffs. Once the options vest, the employees has 10 years to execute the options and buy the shares at $10. If the share price is $25 then they earn a profit of $15 per share. If the stock price is below $10 then they employee would be a fool to exercise the options and they would be worthless.

answered Sep 23 '11 at 20:04
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John
1,194 points
  • Thanks good post and I'll study those sites you gave me! – Peter K. 8 years ago

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Getting Started Web Services Shares