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How do stock options work?

Have you ever heard of the term stock options? In this content, we will show you a little more about what it is, how it works, how it is applied in companies and the results obtained by the team.

With the conflict of interests between company administrators and their shareholders, came the creation of mechanisms that were able to align all the interests of shareholders with their respective managers, this was called stock options; that emerged as a consequence of corporate governance and its problems.

What this article covers:

What is stock options?

It is a right given to employees of a given company, to buy shares at a predetermined price and for a limited time, so that when they become high in the stock market, they can sell them. But this is an OPTION given by the company, stock options would never become an obligation to be made by employees.

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It is also important to point out that in stock options, the employee gains the concession to buy shares; therefore, you will never receive them for free, and you will have to contribute with some amount that will be used by the company in something, for the qualitative growth of those involved.

What are stock options used for?

The stock options strategy serves to stimulate and motivate the employees/executives of a certain company to improve their level of production and individual income, helping their company to grow more and more, and with this the valuation of the company’s shares to rise more and more most.

So, after some time making use of this benefit, the employee/executive can either get rid of the shares he bought at a “bargain price”, or sell them when they are on the rise.

What is the origin of stock options?

The term stock options is an American creation, and its full name is Employee Stock Options Plantranslated into Portuguese it would be something like “Stock Option Plan”.

This modality originated in the US and Europe in the mid-twentieth century, later becoming a widespread practice among large companies and multinationals, and this tendency to use stock has grown more and more.

objective

The objective of the company to apply is always involved with its qualitative and quantitative growth within the niche in which it belongs, by selling its shares at low prices to its employees, they also motivate them to produce and improve the general performance of the company more and more. .

Therefore, when these shares themselves are sold, if the company has grown enough, it will be very profitable for those involved who bought the shares at X price to resell them at Y price.

What are the advantages and disadvantages of stock options?

Stock options, which allow your employees to buy shares at a lower price than they would originally be sold on the direct stock market, are considered a great advantage. Therefore, from a financial point of view, this stock works like investments.

What are the advantages and disadvantages of stock options
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As for the company, stock options only become advantageous to use when the entrepreneur is confident in the long-term performance of his company, and his goals and plans are all aligned as much as possible with his goals, and he is sure that that your initiative will further help them to achieve success!

Why use stock?

Stock options become something viable for large companies such as multinationals, since the invested capital needed to carry out this technique is large, but the return will certainly be much greater when it occurs.

It’s like imagining a glass of water that each day drips a little more water into it, until the time it fills up and you drink it all at once.

How do stock options work?

Stock options work in such a way that for the company to make use of it, this institute must be provided for in the company’s bylaws, with its share plan previously approved by the Company’s General Meeting.

From there, its operation goes through the stages of defining the value of the shares to be sold, the period given to employees to exercise the opportunity, and also the grace period in which the company’s balance sheet will be affected until returns on the stock.

With this content in mind, as an entrepreneur and manager, it becomes much easier to analyze what stock is all about, and decide whether you want to adopt this measure as one of your projects to make your company bigger, and successful!

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