company stock

cc321

HI there - my company has offered me stock at a very low price. They are a multinational start up that are doing very well - based in the US. My question is, how do I know what the stock is worth as there is no 'public price'? Also, the paperwork says that only employees can own the stock so does that mean if I leave the company I have to sell it back to them? How do I know what they will pay me? Last, if the company does sell out and go public - I have heard of stock splitting but is there a situation that will make the stoc worth less than what I paid - as in - is it possible for me to 'lose money' if the company is still 'making money' I realise that the stock can go up and down based on what the company is worth but if they sell up and the stock splits - what are the prospects for me? thanks

bigadaj

If you think teh share price is low then seems sensible to buy.

It's always difficult to value non listed companies, there are various methods such as comparing with listed competitors, looking at multipliers of turnover or more normally profits, return in equity etc.

I left an unlisted uk company a few months ago and my shares and options were based on a share price that is agreed with hmrc, normally in an annual basis, this may not be the case for a us firm though.

Stock splitting shouldn't be particularly relevant as the overall value would stay the same. This is a general statement and share splitting can be a good or bad thing, often a way of keeping share price say not excessive levels, but can be associated with fund raising as well which isn't as good.

Teh bottom line is that you can lose money on any share, and an unlisted firm would generally be more risky than listed firm so you need to do some research and make an individual assessment.

cc321

bigadaj wrote: »

If you think teh share price is low then seems sensible to buy.

It's always difficult to value non listed companies, there are various methods such as comparing with listed competitors, looking at multipliers of turnover or more normally profits, return in equity etc.

I left an unlisted uk company a few months ago and my shares and options were based on a share price that is agreed with hmrc, normally in an annual basis, this may not be the case for a us firm though.

Stock splitting shouldn't be particularly relevant as the overall value would stay the same. This is a general statement and share splitting can be a good or bad thing, often a way of keeping share price say not excessive levels, but can be associated with fund raising as well which isn't as good.

Teh bottom line is that you can lose money on any share, and an unlisted firm would generally be more risky than listed firm so you need to do some research and make an individual assessment.

Well $1.26 per share - how do I get any idea on how much it is worth. Am I in the right to ask them how much it is worth? SO I have the option to buy up to 1000 shares but I don't understand how see how much it's worth and to know when this goes up and down and what stops them from creating more shares if they want to...sorry I so clueless but I want to 'show my support' my company and if it is low risk then ok but I cannot see how I can guage the risk factor.

grey_gym_sock

investing in a single, unlisted company is never low-risk.

when you work there, it's also putting your eggs in 1 basket. if the company does badly, you could lose your job, and your shares could become worthless, at the same time.

ideally, you want to estimate what the whole company is worth, and divide that by the number of shares currently issued, to get the value per share; and then only invest if the price you pay is much less than that.

however, if the money you'd be putting in wouldn't be very much to lose, you could take the view that you'll assume you'll lose it all, and if you make any money on the shares, that's just a bonus ...

Perelandra

Do you have access to the financial statements of your company? This might depend on how long it's been operating for, and if available would give at least some indication over whether the price offered was fair or not, and might help understand the risk a little better.

Could you afford to lose $1,260 if the company went bust?

As others have said, it's a high risk, but whether or not it's high risk for you would depend on your tolerance for a potential $1,260 loss.

cc321

thanks everyone - ive asked some questions to my HR

princeofpounds

Hi there. Stock compensation is a common feature in start ups. It helps tie staff into the company, and it also reduces the need to use cash, which is offend short for companies that needs to invest to grow even if they are profitable (and most start-ups aren't initially).

One difficulty you have is that it is very difficult to value a company, and start-ups are notoriously hard. Owning stock may be your ticket to riches, or it might ultimately be worthless.

You cannot take it at face value that the shares are cheap. To be clear, the price if the shares itself is not relevant. Think of a business worth £1m. If I divide it into 1000 shares, each share is worth 1000 . If I divide it into 1m shares, each share is worth 1. How many shares are outstanding is an entirely arbitrary number.

It can be further complicated by different classes of shares. For instance you might have some people owning 'A' shares which are worth 10x 'B' shares. (The names and multiple are again totally arbitrary).

What is particularly common in starts ups is to give employees shares that have an equal right to the economic benefits of the company, but have much less voting power and so little influence on control.

So you need to find out if there are different classes of shares, and how many there are. From this you can calculate the value put on the company by the share price you are being offered. If this seems low, then buying may be a good idea. High, and it may not be.

How you judge the correct value of the company is a huge topic in itself!

Another thing you will need to watch out for, apart from share classes and valuation, is dilution. This is a particular danger when you don't control a company.

What this means (in simple terms) is that a company may need to create more shares in future. For example it may suffer a shortage of cash and need to sell part of the company to raise some. This means that if you owned 1% of the company beforehand, you might be diluted to owning only 0.5% of the company. The company would be worth more with more cash, but if the person putting cash in has a much lower view of the value of the company, the trade-off could hurt you. Dilution can happen in other ways too.

You also need to consider who is going to buy these shares from you. The company may not trade publicly for many years. Maybe even never. Is it going to pay dividends to shareholders from profits instead one day? Shares aren't worth much if they are never monetised.

The purpose of all this is not to dissuade you. Most schemes like this are made in good faith and some can be hugely advantageous. But it's quite a complex area. Aside from the valuation maths, my advice would be to ask the following questions of yourself:

-Do I think the company has good long term prospects?
-Are the major owners and managers of the company honest?
-When I quiz the firm on all the issues above, do I get honest or evasive answers?
-Do I intend to work at the company long-term, maybe really long-term? What happens if you get a better job offer elsewhere, or your career stalls at the current place?