That is, both a From the company’s perspective, granting shares (instead of options) at a very low price means that fewer shares need to be issued – which is good for all shareholders.
For example, giving shares at a penny instead of granting options exercisable at 50 cents means that more options must be granted which means .
Stock options, if unexercised, avoid this potential problem.
An option gives one the right to buy a certain number of shares for a stated price (the exercise price) for a given period of time. Only in the year that options are exercised, is there is a tax liability.
if you buy shares in a CCPC, you can claim 50% of your investment loss and deduct from other income.
Sometimes, the founders will transfer some of their own founders shares to new partners.
As a general rule, try to give employees founders shares early in the company’s life. If a company is beyond its start up phase, there is a worry that if these shares are simply given (for free or for pennies) to an employee, CRA (Canada Revenue Agency) considers this an “employment benefit” on which income tax is payable.
However, make sure that the shares reverse-vest over time (or based on performance), so that quitters and non-performers don’t get a free ride. This benefit is the difference between what the employee paid for the shares and their FMV (Fair Market Value). For CCPCs, this benefit may be deferred until the shares are sold.
Options are also a key part of a compensation package.
In larger companies, options contribute substantially – often many times the salary portion – to income.