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Founders' Stock

Definition - What does Founders' Stock mean?

Founders' stock is the common stock issued to the founders of a company. These stocks have slightly different characteristics when compared to the common stocks sold in the secondary market. The main difference is that founders' stock is issued only at par value and has a vesting schedule that comes with it.

Divestopedia explains Founders' Stock

Founders' stock is not a legal term by itself. Rather, it is a term that describes shares given to a certain group of people who were the early participants in the formation of a company. As a result, the company's code or, for that matter, any other legal document, will not contain this term.

A company's founders include those who initially founded the company, early directors and other officers who were involved in putting the company together. They are the people who were responsible for converting an idea into a company and they created the vision for it. In order to give some form of compensation to founders for their efforts, they are given founders' stock. It is given at face value, sometimes as low as $0.01 per share, but these founders are given a large percentage of them. The company is able to give so many shares at such a low value because the new company has not technically started to do business yet.

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