Types of Equity

There are several types of equity in a business.

Here’s a list to consider when engaging a startup:

Authorized shares — the maximum amount of shares the company can distribute.

Outstanding shares — the number of shares actually distributed.

This determines the current valuation of the company.

Subscribed shares — the number of shares exchanged for an investment into the company.

Rights shares — the shares that investors have the right to purchase.

This is often in the form of warrants that give the investor additional shares at a specified price.

Sweat equity shares — the shares given to those who provide value to the company through labor.

Treasury shares — the shares repurchased from investors and employees and held by the company.

Options — shares promised to employees in exchange for their work.

This is used as an incentive to retain employees.

Dividends — shares of stock converted to cash and given to shareholders.

This is used to provide additional compensation to the shareholders. 

Equity can be used in multiple ways to compensate and incentivize shareholders and employees. 

 

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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.