Giving away shares in your startup?
Why it might not be the best idea and what to consider instead
If you’re considering giving shares to an incoming co-founder or startup team member, you’re definitely not alone.
As accountants and CFOs for startups, we’ve helped clients with employee equity plans for years. However, they are on the rise and we’re often asked questions about the tax implications of different equity options.
Here, I’m sharing general information to help you understand the difference between shares and share options from a tax perspective because there is a big difference, and it’s well worth understanding for you and your team’s sake.
But first, please remember this is not personal advice for your situation (you need to speak to us for that 🙂 ).
Why does it matter?
Especially in the early stages of a startup company, it’s tempting to think it doesn’t matter if you give co-founders/team members shares or share options. What’s the difference, if the company is valued at nothing or very little?
Even at later stages, many founders and operators don’t understand the difference and want to either give away shares for free or at a discounted price. Here’s why you need to think twice about that.
Offering equity in your startup to other people is a big deal (pun intended). It’s well worth taking the time to get it right, for everyone.