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Early stage company issuing equity to a contractor: Restricted Stock or Stock Options?

I'm compensating a contractor with a small amount of equity (less than 3k shares) and was curious what people's thoughts are regarding granting restricted stock vs stock options. Note that the current value of the shares is negligible (fractions of a cent) as we're a brand new company.

Any salient advantages to either for a company at this stage?

3 Replies

Mr.Emad Shendy
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Mr.Emad Shendy Entrepreneur
Collection and operation Manager at TCM Egypt
Aswan, I assume you are talking about contracting the web development task. I am wondering why don't you offshore the job for fraction of the cost at the states? the majority are not that bad as you read on blogs and articles.
Jacques de Cock
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Jacques de Cock Entrepreneur
Partner at CQRS
Aswan keep it simple give him shares. The end result is that you are likely to issue many new shares if you gain funding so avoid having to explain and disclose options at every stage
Lonnie Sciambi
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Lonnie Sciambi Advisor
"The Entrepreneur's Yoda"- inspiring, guiding entrepreneurs to achieve their dreams - CEO Mentor/Advisor, Author/Speaker
Aswan, whatever you do understand that it will have future implications because you are either introducing another class of shares (restricted) or an option plan, which you might want to have in the future for either contractors or employees (or maybe both). Either way, you have to protect yourself and the company, legally - meaning you have to "paper the transaction." And at this point your development (just guessing based on your comments) you certainly don't want to waste time or money on that. Why not just issue regular shares. I assume you have a shareholder agreement. The contractor shares would be governed by the same agreement as all of the other shareholders.

This is the good news, bad news associated with using your equity to pay for services. You're conserving cash, but, you're bringing new shareholders into the fold.

Hope this helps. Otherwise, contact me through my website if you want to discuss this deeper.
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