Holloway Guide ToEquity Compensation
Common questions covered here
What does it mean for a company to "go public"?
On average, how long does it take for a private company to go from founding to IPO?

IPOs

Definition A private company becomes a public company in a process called an initial public offering (IPO). Historically, only private companies with a strong track record of years of growth have considered themselves ready to take this significant step. The IPO has pros and cons that include exchanging a host of high regulatory costs for the benefits of significant capital. After a company “IPOs” or “goes public,” investors and the general public can buy stock, and existing shareholders can sell their stock far more easily than when the company was private.

Companies take years to IPO after being formed. The median time between a company’s founding and its IPO has been increasing. According to a Harvard report, companies that went public in 2016 took 7.7 years to do so, compared to 3.1 years for companies that went public in 1996.*

···

Sales and Liquidity

danger With private companies, it can be very hard to know the value of equity. Because the value of private company stock is not determined by regular trades on public markets, shareholders can only make educated guesses about the likely future value, at a time when they will be able to sell stock.

After all, private company stock is simply a legal agreement that entitles you to something of highly uncertain value, and could well be worthless in the future, or highly valuable, depending on the fate of the company.

confusion We’ll discuss the notion of a company officially assigning a fair market value later, but even if a company gives you a value for your stock for tax and accounting purposes, it doesn’t mean you can expect to sell it for that value!

You’ve been reading an excerpt of an online book. Support the authors and the ad-free Holloway reading experience by purchasing it for instant, lifetime access plus a PDF download.
If you found this post worthwhile, please share!
Get full access to this book.
This page is an excerpt of a much larger book. Get full access now.

Make sure your equity generates wealth, not a shocking tax bill.

Stock options, RSUs, job offers, and taxes—a detailed reference, including hundreds of resources, explained from the ground up, for employees and managers.

  • 80-page online book
  • 364+links and references
  • Newly updated for 2021!
  • Digital access to this title in the Holloway Reader
  • Downloadable PDF and EPUB for personal offline use
Length: 80 pages
Edition: e2.1.0
Last Updated: 2021-02-19
Language: English
ISBN (Holloway.com):
978-1-952120-03-9

Equity Compensation

by Joshua LevyJoe Wallin
Stock options, RSUs, job offers, and taxes—a detailed reference, including hundreds of resources, explained from the ground up, for both employees and managers.

Learn more.

Enter your email for more details, updates from the authors, and free samples from the book.