The most common allocation formula is in proportion to compensation, years of service, or both. New employees usually join the plan and start receiving allocations after they’ve completed at least one year of service. The shares in an ESOP allocated to employees must vest before employees are entitled to receive them.
So how many should I issue? A common practice is to issue share capital which is easily divisible in the future (for example it may be best to issue 50 or 100 shares upon incorporation). By doing so this will allow you to more comfortably split / change the ownership of shares going forward.
When companies split their shares, they do so simply by exchanging new shares for old shares with all the shareholders. Stock rollbacks or share consolidations as they are sometimes called are the reverse of stock splits – but with one notable difference.
Requirements
- Article of Association of the Company must not restrict the right to make such allotment.
- Authorise capital of the Company must have the limit to allot the required shares.
- Name of the Allottee.
- Fathers Name of the Allottee.
- Full address with PIN.
- No of shares to be Allotted.
- PAN card copy of the person.
Dividing equity within a startup company can be broken down into five simple steps:
- Divide equity within the organization.
- Divide equity among company founders.
- Allocate money to investors.
- Divide the option pool into three groups: board of directors, advisors, and employees.
- Create a vesting schedule.
In an ESOP, the shares are allocated based on an employees’ salary and/or tenure with the company. For most ESOPs, there is no cost to the employee. The proceeds will be taxed at ordinary income tax rates when those shares are bought back at retirement, death or separation from the company.
There is no minimum number of shares that must be authorized in the articles of incorporation. One or more shares may be authorized. However, the corporation may not sell more shares than it is authorized to issue and it must receive consideration in exchange for its shares.
On average seed startups will issue from 2% to 8% of stock options (from the fully diluted shares). If a CTO is needed, he may get 1% to 4%. Other employees will typically split the rest, adjusted for experience, seniority, needs of the company, and skillset. You typically can ask for 0.25% to 2.0%.
When a company issues shares, either to subscribers on incorporation or subsequently, the persons receiving this equity are usually required to pay the company for the shares they have been given. The consideration given in exchange for its shares is usually cash.
Example of an Equity Split
Founders: 20 to 30 percent divided among co-founders. The company contribution is rarely exactly 50/50 and the equity split should be based on a variety of factors, including those discussed above. Angel Investors: 20 to 30 percent. Venture Capital Providers: 30 to 40 percent.
The Companies Act under Section 2 (68) requires Private Company Ltd to have a minimum of two members. Here, the minimum number of members required is two. So, while a Single person or entity may hold 99 % of the shareholding, it is necessary that another person/entity owns the balance 1 %.
For investors, it’s simple. You can give them shares by creating investment agreements either by doing a funding round, or creating an Advance Subscription Agreement.
A public company may allot shares in the following ways: to the public through prospectus (public offer) through private placement. through a rights issue or a bonus issue.
Log onto the CIPC E-services website www.cipc.co.za / Online Transacting / E-services and logon using your customer code and password. Select Authorised Share Changes, type in the company registration number and view the displayed authorised share information.
The articles may contain such an authority but if they do not or if the authority has expired then an ordinary resolution of shareholders is required to allow the allotment.