Share options vs shares - is a share option scheme right for your business?

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This article looks at the key differences to help you decide between share option is or stock options vs shares.

Updated Sep 18, What is a Stock Option? A stock option gives an investor the right, but not the obligation, to buy or sell a stock at an agreed upon price and date. There are two types of options: puts, which is a bet that a stock will fall, or callswhich is a bet that a stock will rise.

Plus whether you should set up a share option scheme for your company. What are share options and stock options? Firstly share options and stock options mean the same thing.

Share options are more likely to be used in the Share option is, and stock options are more common in the US. That price will usually be cheaper than if you buy the shares at the time. If this is all new to you, then this article explains a lot more about share options and giving shares to staff and investors. Why would you have a company share option scheme?

  • Share Option | Definition of Share Option by Merriam-Webster
  • Employee Stock Option (ESO) Definition

You offer someone the option to buy the shares later at a discount because you want them to stick around. If you just gave them the straightforward choice of buying some shares in the company now, they might buy the shares and then leave. Not only do you want them to stay with the company, but you also want them to work hard and make a big contribution.

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What are the advantages and disadvantages of share option schemes? That depends.

Stock Option Definition

Or you might just want to give some shares to staff — see below for some alternatives to share options. Where a company share option plan is a good idea If you have big plans, maybe some investment already and a team of people who you want to give shares to, a share option plan or the EMI share options way of issuing shares could be good for you. But your plans will need to be pretty big to make it worthwhile for your staff.

It sounds good. It would have cost a whole lot of money for lawyers and we would rather have spent on developing the company.

Defining share-option and share-award schemes Set up employee share schemes Defining share-option and share-award schemes Guide Share-option schemes Share-option schemes are typically used as an incentive for employees. A share option is the right to buy a certain number of shares at a fixed price, some period of time in the future, within a company. Employees can generally exercise their share options - ie buy the shares - after a specified period, known as the vesting period. You can make the granting and exercising of share options dependent on reaching certain targets, such as specific sales targets. When an employee exercises their share options, it's at the price fixed at the date of grant, ie when the options were given to the employee, regardless of the prevailing market price.

The last of these is the big one for staff. Can staff sell their shares later?

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If you give staff stock options, these are only attractive if they can sell their shares later and make a sweet bundle of cash. This is the bit that you hear about people who worked for Google or one of the big tech companies which have floated on the stock exchange, and betting systems in binary options got stock options.

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These particular staff members would then be able to sell their shares on the open market years later because they had shares in a public company. If your company is likely or you want to remain in private hands, your staff will only be able to sell their shares to you the owner or the company.

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What about when you sell the company? Think about growth sharesor the EMI scheme instead if this might be the case for you.

Stock Option Definition

Make sure that you protect yourself and your company if anything happens to your employee or if they leave. It could save you hours of thinking about this, and thousands in legal fees. Other helpful articles about how to give shares to others You might want to also read these articles about shares and equity:.