• Is there any significant disadvantage receiving stock options vs. shares in a new startup?
  • What could be the excuses for not giving shares but stock options and would it be reasonable to insist on shares?

Background: I may be joining a fresh but fully funded (pre series A) startup. I would be employee #5. I would be fully committed and invest 100% of time. Hence I would expect equity (like 0.5%-1%?) but I think I heard somebody talking about stock options. The latter would not motivate me too much to work in a startup but that's just a feeling so I wonder if there are actual disadvantages of stock options vs. equity.

closed as off-topic by gnat, motosubatsu, Mister Positive, David K, sf02 Feb 22 at 17:58

This question appears to be off-topic. The users who voted to close gave this specific reason:

  • "Questions asking for advice on a specific choice, such as what job to take or what skills to learn, are difficult to answer objectively and are rarely useful for anyone else. Instead of asking which decision to make, try asking how to make the decision, or for more specific details about one element of the decision. (More information)" – gnat, motosubatsu, Mister Positive, David K, sf02
If this question can be reworded to fit the rules in the help center, please edit the question.

  • Maybe your question would be better received if you tried to reword your question towards something like "How can I ask for equity rather than stock options" – Twyxz Feb 22 at 12:02
  • 3
    This question might be better suited at Personal Finance & Money. – David K Feb 22 at 13:06
  • This is better suited questions for personal finance SE as mentioned above. Just a short example: If your company's stock worth $4 and you own 100 of them, you own $400 of asset. If you only own 500 options to buy at $5, you own $0 of asset. – tweray Feb 22 at 14:07
  • For such an important decision, I would urge you to read the vast amount of info on the www, just google: forbes.com/sites/allbusiness/2016/02/27/… here's a basic intro: allbusiness.com/… – Fattie Feb 22 at 14:27

All else being equal options are BETTER than actual stock (at least in the US)

If you get stock, you have to pay income tax on the value of the stock when it vests, regardless of whether you can sell the stock or not.

With option, you don't own anything unless you exercise and no tax is due unless you either exercise or sell (depending type of stock options and AMT or not).

Taxation of these things is horribly complicated and options give you the same earning potential but more control over timing and tax mitigation.

  • @Ramhound: correct, but stock is worth this way. Not only do you not get anything, you pay income tax on money you never made. Stock options are at least zero. – Hilmar Feb 22 at 23:44

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