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Dividing Up Stock In Your Start-Up

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Dividing up the CompanyOnce you have created stock in your start-up and have assigned it a par value, the next step is to determine who gets the stock.  Generally speaking, there are three classes of individuals who will receive stock in the start-up:  Founders, key employees, and investors.  The category of investors is somewhat complicated as there are many different types of investors and different stock option compensation packages, so this article will only focus on stock grants to founders and key employees of the start-up.

As discussed in the previous entry, most start-ups choose to create 10 million shares of common stock.  It is important to note that not all of this stock will be distributed to the start-up Founders, key employees, and investors.  The stock that is kept in reserved is generally considered to be in a stock option pool.  Another way to think of this is as a savings account containing stock.  If at any time in the future, the stock is needed, it can easily be distributed.

Founders of the start-up often represent the Board of Directors, and as such it is wise to grant the Founders an amount of stock that will create a majority interesting.  The amount of stock given to key employees various by each employee and is at the discretion of the Board of Directors.

Finally, when granting stock in the start-up it is also reccomended that Founders and key employees are not given all of their stock at once.  Instead, they earn it over the course of about four years.  This helps to ensure everyone remains with the start-up during its growth, and provides protection to the start-up in case a Founder leaves soon after incorporating.

To learn more about stock creation for your start-up, contact our San Francisco Bay Area Start-Up Attorneys. 

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