Managing a Business/company shares
Hello, David Stephensen
I recently started working for a start-up company as a web developer.
Since it is a start-up the pay is not that great, but I was given company shares as 'payment'.
I do not have a business degree nor knowledge of shares/stocks.
So, what exactly can I do with these shares?
How can I generate wealth with the shares?
The shares in the company mean that you are now a part owner of the company. Some things to check:
1. Have you received a share certificate? You are entitled to one.
2. What was the sale value of these shares at the time they were issued to you? You may need to know this for tax purposes.
3. What percentage of the company do you now own?
4. Are these ordinary shares the same as the main owners have or do they have some special limitations? They need to be clear with you about this.
Now another question:
Did you agree to receive shares in the company as part of your employment contract or did they suddenly decide to give you shares instead of wages without your agreement? If they did this without your agreement they may be in breach of Canadian labour laws. If you object to this, then check with the labour authorities.
Now let's see what benefits you have received.
Firstly you need to understand risk.
As an employee being paid for your time fortnightly or whatever, you are risking, say, 80 hours of your life. If you don't get paid, then you can walk away and wear that loss. The level of risk for you is very low.
If people take a higher risk then they get paid more. If your job was as a miner or bomb squad officer, you would be paid more money because your work is dangerous and you are risking your life to some extent.
If you start a software company you are investing a lot of money without making anything at all at first. If the company fails then you will lose all of this money. This is a big risk, so you expect, if the company is successful, to make a lot of money, many times what you invested. If the company does poorly and you make only a little money, that is not a good result either, as you could have made the same money for much less risk just by getting a job.
By giving you shares instead of payment for your time, the owners of the company have persuaded or coerced you into accepting the same risk as they are, but on a smaller scale. You are gambling part or all of your salary on the success of the company. Everyone has a different comfort level with risk and only you can decide whether this is acceptable to you. You would need to be satisfied that you have a good chance of making a lot more money than you would have received as wages.
You can make money from shares in two ways.
If the company makes a profit, it can pay a share of the profits to its shareholders in the form of dividends. In the short term I would not be expecting much from this but I may be wrong.
If the company is successful, its sale value increases. This is equivalent to the value of the shares increasing, and means that you could sell the shares at a higher price that you 'bought' them for when you originally traded your labour for them.
If it is a private company, you'd need to do your own footwork to find a buyer, and this may be difficult. Your best option would be to try and sell them back to the owners or to other employees or clients or associates of the company. You also have to work out what the shares are worth, and this would all be debatable you would need to bargain.
When companies become larger and more successful they get publicly listed on a stock exchange. After this happens you can then get a stockbroker to sell them for you and the price is more clearly determined by the market.
I don't know anything about this company, of course, but if it is a small start-up business with a big bank loan and the owners are not so experienced then your risk is very high. The more established and experienced business people the owners are and the larger the company and the less debt it has, the lower the risk.
As a shareholder I'd say that you are entitled to see the balance sheet of the company. This shows what the company is actually worth (assets (money and property) less liabilities (debts and loans)). I recommend that you learn to read a balance sheet and a profit and loss statement.
If you ask the owners when they expect to be publicly listed, they will probably give you an overly optimistic answer, not to cheat you, but with all of their own money invested they must have a positive and optimistic attitude. It may still be worth asking them, just to see what they say.
A more likely plan, however, is that, rather than publicly listing the company, the owners intend to build the value of the business and then sell it to a larger company. Here is where you need to always keep in touch with them and make sure they tell you when this is going to happen. This is your best opportunity to sell your shares as well and collect the profit from your investment.
I am basing this answer only on what I can gather from your question. If I have gone in the wrong direction, please clarify the situation for me.