Stock question - Shares vs Options ????

[Gmann]

Hey everyone.

Long time reader, first time poster.

Thought someone on here might be able to give me a bit of advice.

What is the difference between a share and options?

Also by law can a publically traded company have a closed door meeting on their shareholders meeting? Or is it up to the directors to determine?


The reason im asking is because a company is currently courting me to come onto their side by offering me several thousand shares and several HUNDRED thousand options. Just curious what kind of limitations each provide and what sort of things i should look out for when bargaining with these people.

From whats been talked about casually, it sounds like a good package, decent base salary, sign on bonus, shares and options, however i dont want to get "suckered" by not being informed. Ive never had this sort of attention thrown at me and i dont want to make a wrong choice or decision and get burned down the road by a poor judgment call on a particular item/contract early on.

Anyone got any tips/suggestions when it comes to this?

the stock is currently trading at around 50 cents, and im very familar with what htey are doing down the road/future and its quite exciting, im sure in 1 years time it could be a 10 dollar stock.


Thanks

 

[cxim]

most of this has to do with tax implications & restrictions on selling the stock & time frame & restrictions of the options.

shares >> when you are given shares, you get a tax obligation at current market price ( price the day the stock is transferred to you ). you must pay income tax on the shares that year. if you cannot sell any stock, which is usual in this type of situation for 5 to 7 yrs or so, you have to pay the tax from other assets.

options >> a promise to sell you shares in the future at a set price. options usually have a real value if you sell the option, if that is allowed, but are not taxed. They usually have a time limit ( as in good for 5yrs or so ) but do not have to have a time limit. Shares obtained by options may have time restrictions on when they can be sold. Tax consequenses are different. You have to have the money to by the shares when the time comes.

as a general rule, options allow you the potential to make the most money in the future.

The short of it is... the deals can vary quite a bit, pending the restrictions. you need to have the deal fully evaluated by someone like a financial advisor or stock broker, that can explain the consequences to you of both the stock & the options.

 

[amok]

Oops, should have read the question better! A couple of sites you may want to check out are MyStockOptions.com and OptionWealth.com. These sites are geared toward beginners in the option market, and are especially good for employees who are negotiating their sign on packages.

 

[cxim]

amok,

he is contemplating a job where these will be part of his income in lieu of cash salary. It is a deferred compensation package.

It is not a trade stock vrs a trade options type of question.

 

[amok]

Hehe, thanks cxim, its 7:30am here and I'm still a bit sleepy .

 

[kranky]

<< You have to have the money to buy the shares when the time comes. >>

Not usually. Typically you can just say you want to cash in your options and they'll give you the cash difference as if you bought and immediately sold, just so you DON'T have to come up with the money. Of course, if you want to hold the shares you have to pay for them, but why do that if you already have the options.

A drawback of options is that it is a way of tying you to the company. You usually have to still be working there to cash in your options, so if the stock doesn't go up you might feel bound to stay until you can cash in, and that day may never come.

Take note of what cxim said about possible restrictions on selling the shares you would get. So if you can't sell them for 5-7 years, don't be counting on that money. Just ask the people at Priceline who saw their stock start out at 70, zoom up to 160, and is now down to 3. It didn't do those people any good that the stock went up to 160 if they couldn't sell their shares yet.

That's not to say it's a bad package, just that the shares and options are only a potential benefit, not a guaranteed one. If you would be satisfied with the salary, sign-on bonus, working conditions, etc. without the shares and options, then fine. But this is the way people are doing things now in the world of startups. If the company becomes a Cisco, the early employees make out. If it flops, that's the breaks. I think the risk would be in taking a much lower salary in exchange for shares/options. As long as the salary is fair, you're really not doing badly.

Regarding the question about shareholders' meetings - if you are asking if the directors can restrict it to shareholders and not let the general public attend, I believe the answer is yes.

 

[amok]

OK, now I've had my coffee . As the others have pointed out, you need to be wary of the restrictions placed on the options. If you can't cash them in for 3-7 years, you may want to negotiate a higher salary and fewer options. Like kranky said, startups don't always come through! And its also possible that you may not want to stay with the company that long anyway . But if the restrictions on cashing in your options are more loose, then several hundred thousand options may be an excellent deal. Go to the sites I listed above. They will help you work through the problem.

 

[cxim]

to add to what Kranky said,

There are many variations in how the deal is structured. I have been in on a couple of startups. with one, the options could not be exercised for 4 yrs, expired in 7 &amp; the shares had to be purchased with cash. The company did not go public for 3 yrs. so there basically was no market for the options until the company went public.

This varies with the offer to you. Other people in the same company got different deals.

after that it went OK &amp; was a good investment.

the other went bust.

The DEVIL is in the details, as they say....

 

[Gmann]

I should know on Tuesday what my deal is.

Maybe ill post it here and get some free advice no?

god i love the internet

 

[Handle]

Also by law can a publically traded company have a closed door meeting on their shareholders meeting?

In response to this question, I believe (I'm not positive, although I've heard this somewhere) that a rule was recently introduced which is supposed to ban these types of closed-door meetings (or if they have them, they have to report the news/information within a certain amount of time of that meeting). Before, I think, certain analysts would get to hear information before the general public. A rule like this one is supposed to level the playing field, however, I have heard that it will only serve to make companies more paranoid when releasing information. The net result, some people have predicted, is that companies will just get more tight-lipped.

 

[sandmanwake]

Out of curosity, what's the company's stock symbol?