How does stock work in a private company?

[dave_the_nerd]

Apparently getting a "stock" bonus rolled into my 401k, as a retention incentive. But work for a privately held company.

Asked around, and know another guy who was offered (but passed) on "stock options" when working for a company that was not public.

How does this magic not-stock stock work? Is it dependent on the company going public in the future?

 

[SaltyNuts]

Loolol at this question. Errrr, kind of like stock in a public company? Derp derp.

 

[Mandres]

Every corporation has stockholders, whether the stock is publicly traded or not.

 

[deadlyapp]

I guess it could go a couple different ways. If you have stock in the company, then you should own a portion of that company and if it is sold or makes a profit, you should share in it. Now, since it's a private company, the owner could theoretically give you 1000 shares of stock and give himself a million shares, diluting your amount to the point where it basically means nothing.

Stock in a private company is likely pretty worthless unless you share in whatever profits they make.

 

[dave_the_nerd]

So when you leave, how do you "sell" the stock, if it's not tradeable and has a price determined by the... oh.

This doesn't sound like a good deal. Unless you accidentally find yourself working for the next Microsoft or Facebook.

 

[master_shake_]

wouldn't it have to be representative of the actual valuation of the company?

not just some random number removed from ones anus?

 

[freeskier93]

Depending on the company stock options can be be a huge payoff. If you're being offered stock options as incentive you'd have to be a moron not to take them, it's literally free money when the company goes public.

Obviously, while the company is private, the stocks are monetarily worthless.

 

[dave_the_nerd]

wouldn't it have to be representative of the actual valuation of the company?

not just some random number removed from ones anus?

Maybe, but how would I validate that? It's not like they have to do SEC filings.

 

[master_shake_]

Maybe, but how would I validate that? It's not like they have to do SEC filings.

 

[Dr. Detroit]

Maybe, but how would I validate that? It's not like they have to do SEC filings.

The Company should have auditors, it should have a statement of Shareholders Equity, it should have an Articles of Incorporation, it should have a valuation report often referred to as a 409A.

If they are giving you stock, they should have a Equity Plan Document you are required to read prior to accepting your stock award. The award will have details within it.

Start here:
http://www.investopedia.com/terms/s/stockcompensation.asp

Did they give you an 'option"? http://www.investopedia.com/terms/s/stockoption.asp

Did they give you a Restricted Stock Unit (RSU) - http://www.investopedia.com/terms/r/restricted-stock-unit.asp

There are too many variables to go through all the scenarios possible - post your Stock Grant Award and we can then chime in.

An offering to raise funds require registration with the SEC if the dollar amount is above a threshold: Regulation D Rule 501-508 covers this.

https://lawblogs.uc.edu/sld/the-des...8-includes-preliminary-notes-to-regulation-d/

 

[joutlaw]

Generally, the stock is not available in the event of a termination.

If your company goes public, is acquired by another competitor, or purchased by a private equity firm, you could receive a payout of your shares. The value of the shares depends on the sale price of the company, class of stock, any outstanding debts or obligations, and number of shares outstanding.

 

[angminas]

Loolol at this question. Errrr, kind of like stock in a public company? Derp derp.

Where's the dislike button? Go back to Lurkville.

 

[Gryz]

Make sure you understand the difference between "regular shares" and "preferred shares".

If the company ever gets sold, in stead of going IPO, there is a huge difference. Regular-shareholders could get nothing, while the preferred share-holders might get everything (that's left).

 

[JTsyo]

Does HR not provide you with material explaining all this? If not you should ask them to so you can make a informed decision.

 

[Dr. Detroit]

Make sure you understand the difference between "regular shares" and "preferred shares".

Common & Preferred - no such thing as "regular". But yes, they have major differences in regards to preferences in the case of acquisition or bankruptcy.

 

[DaveSimmons]

The value of the stock also depends on the type of corporation. S Corporations pay out distributions of profits every year. So at a privately held and profitable S-corp owning a chunk of its stock can be quite nice.

 

[Red Squirrel]

Wonder if it works kind of like a co-op. My bank is a co-op, you pay $5 to become a member when you first open your account, kinda like buying a share I guess which entitles you to profit sharing. So every year based on profits, and how much money/services you have with them, you get a cut of their profit. I guess internally, those are probably managed kind of like shares. Except they probably more or less set the value based on profit, vs the market setting the value. Honestly more companies should run that way, it keeps a certain amount of loyalty, and when the company does well, everyone wins.

 

[Fern]

Apparently getting a "stock" bonus rolled into my 401k, as a retention incentive. But work for a privately held company.

Asked around, and know another guy who was offered (but passed) on "stock options" when working for a company that was not public.

How does this magic not-stock stock work? Is it dependent on the company going public in the future?

A stock "bonus" may mean that you are being given stock at no cost to you.

Stock Options are different. You must pay for that stock. The option might be given for 'free', but generally to get actual stock you combine cash $ with the option to purchase the stock.

As regards how you cash out of that stock, yes, an IPO or sale of company can do it. But as has been suggested the HR Dept etc should have info on that.

Fern