What are founder’s shares (2024)?

After setting up an company, founder stocks can be issued. But what are founder shares? We will discuss their meaning in this article.

If you want to read about shares in general, click here!

Founder shares in brief

  • Founder shares do not have a fixed nominal value
  • Founders often receive the shares for free for their effort
  • Founder shares often pay out dividends
  • Founder shares often provide voting rights
  • Founder shares are often temporary in nature

What are founder shares?

Founder shares are issued to the people who have founded an organization. This does not always happen, but the organization’s board can choose to do so. For example, founder shares may be issued if there are significant (personal) investments in an organization.

Holders of founder shares often have the right to a specified portion of the profits. Like standard shares, founder shares do not yield anything in case of losses.

Founder stocks can be issued to the people who have actually founded an organization, but also to investors. They do not control the company, but have invested money in the organization.

Shares with or without voting rights

If you own standard shares in a company, you have voting rights. When an important decision needs to be made, you can attend the shareholder meeting to voice your opinion. However, this is not always the case with founder shares. In most cases, founder shares also provide voting rights.

Cashing in founder shares: their value

In many cases, you can choose to cash in your founder shares. You typically receive a fixed amount of money in return. Most founder shares have an end date when holders are bought out for a fixed sum. In some cases, founder shares can be exchanged for regular shares.

Paying out founder shares in a start-up

Founder shares are often protected through a vesting schedule. Employees and founders sometimes leave a new business quickly. By protecting founder shares, it is prevented that individuals who are no longer connected to the company benefit from its success.

The company can typically buy back the shares at a fixed sum of money upon departure.

The shares are paid out in multiple tiers:

  • At the very top, you see the early founders who hold the majority of the shares.
  • In the second tier, you find the first true employees. They may accept a lower salary in hopes of achieving a high return with their founder shares.
  • In the third tier, you find employees who joined much later.

Depending on the size of the organization, it takes about a year to go through each year.

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