Shares not distributed


1

let's take the exemple of a startup launched with 100.000 $ divided in 100.000 shares. Can
the founder have only 50.000 shares (so 50% of the startup) and leave the 50.000 others not allocated and distribute them later on to employees ? I cannot really understand the principle of share existing but belonging to no
one.

Thanks for your help.

Shares

asked Oct 1 '11 at 01:37
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Luc
6 points

1 Answer


2

The reason you don't understand the concept of shares existing but not belonging to anyone is because it doesn't work that way.

Using US vocabulary, shares issued have an owner. In your example, only 50.000 shares have been issued, so the founder owns 100% of the company.

The company can issue more shares (say, another block of 50.000) to someone, in which case the original owner now would own 50% of the company.

There is a notion of shares authorized, meaning that the board can issue them whenever it wants. So following your example, the company when it gets created could authorize 100.000 shares and issue 50.000 to the original founder. The founder would own 100% (of the issued shares, the only thing that matters when looking at ownership). If the company had not authorized 100.000 shares, it would need to amend its legal documents.

Think of the number of authorized shares as the current maximum number of shares allowed to exist, but they don't quite exist yet.

answered Oct 1 '11 at 01:45
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Alain Raynaud
10,927 points
  • Thanks for your explanation. When an employe want to change his stock options againts shares, that means some new shares needs to be authorized ? – Luc 9 years ago
  • No because those shares should have been authorized before. When the employee exercises stock-options, the shares are issued, from the authorized pool. It would be wrong for the board of directors to have granted stock-options if the matching amount of shares were not authorized. – Alain Raynaud 9 years ago
  • @alain-raynaud, thanks that's clarify a lot of things. – Luc 9 years ago

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Shares