The Business Professor
Employee Stock Option Plans (ESOP)
What is an Employee Stock Option Plan? Employee stock ownership, or employee share ownership, is where a company's employees own shares in that company. US employees typically acquire shares through a share option plan. In the UK,...
The Business Professor
Economic Value Added - Business Valuation
What is the Economic Value Added Method of business valuation? EVA is the incremental difference in the rate of return (RoR) over a company's cost of capital. Essentially, it is used to measure the value a company generates from funds...
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Earning Capitalization Method - Business Valuation
What is the Earnings Capitalization Method of Business Valuation? The capitalized earnings method consists of calculating the value of a company by discounting future profits with a capitalization rate adjusted to the determining date...
The Business Professor
Drag-Along Rights - Term Sheet
What are Drag-Along Rights in a Term Sheet? Drag-along rights, on the other hand, are control provisions that can protect against minority shareholders holding up a deal for the sale of the company. Specifically, it requires a...
The Business Professor
Dividing Ownership Among Founders
How do you divide the ownership interest of a startup among the founders? Harvard Business Review found that the percentage of founders who express unhappiness with their equity split increases 2.5x as their startups mature.
The Business Professor
Dividend Rights of Preferred Shareholders
What are Dividend Rights of Preferred Shareholders? Preferred dividends refer to the cash dividends that a company pays out to its preferred shareholders. One benefit of preferred stock is that it typically pays higher dividend rates...
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Discount Future Cash Flows - Business Valuation
What is the Discount Future Cash Flows Method of Business Valuation? Discounted cash flow (DCF) is a method of valuation used to determine the value of an investment based on its return in the future–called future cash flows. DCF helps...
The Business Professor
Crucial Success Factors - Management
What are Crucial Success Factors in Management? Critical success factor is a management term for an element that is necessary for an organization or project to achieve its mission. To achieve their goals they need to be aware of each key...
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Crowdfunding - Explained
What is Crowdfunding? Crowdfunding is the practice of funding a project or venture by raising money from a large number of people, typically via the internet. Crowdfunding is a form of crowdsourcing and alternative finance.
The Business Professor
Crisis Management
What is Crisis Management? Crisis management is the process by which an organization deals with a disruptive and unexpected event that threatens to harm the organization or its stakeholders.
The Business Professor
Creation and Maintenance of Organizational Culture
How do you create organizational culture? How do you maintain organizational culture?
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Conversion Rights - Preferred Shares
What are Conversion Rights of Preferrred Shareholders? Conversion rights refers to the shareholders ability to convert the preferred shares into common shares. Conversion rights are important as they affect the calculation of other...
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Contributing Intellectual Property for Equity
When do investors or founders contribute intellectual property to a startup in exchange for an ownership or equity interest? When the company is formed, the founders are typically issued common stock in the company in exchange for the...
The Business Professor
Common and Preferred Shares
What is the difference between Common shares and Preferred Shares? The main difference between preferred and common stock is that preferred stock gives no voting rights to shareholders while common stock does. Preferred shareholders have...
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Class FF Stock
What is Class FF Stock? FF Preferred Stock is essentially common stock with a twist that allows it to be converted to preferred stock. Issued to a founder, it typically can only be converted to the round of preferred stock being sold at...
The Business Professor
Capitalizing or Funding a New Business
What are the options for funding a New Business? How does funding affect the capital structure? Retained earnings, debt capital, and equity capital are three ways companies can raise capital. Using retained earnings means companies don't...
The Business Professor
Business Plan - Management and Organization
What should be included in the Management and Organization section of the business plan? This section of your Business Plan should include the following: your company's organizational structure, details about the ownership of your...
The Business Professor
Build Up Method - Business Valuation
What is the Build Up Method of Business Valuation? In the "buildup method" valuation begins with the risk-free rate. The individual valuing the firm then makes the subjective determination of what percentage to add to the risk-free rate....
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Authorized Shares
What are Authorized Shares of a company? Authorized shares are the maximum number of shares a company is allowed to issue to investors as laid out in its articles of incorporation. Outstanding shares are the actual shares issued or sold...
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Anti-Dilution Protection
What is Anti-Dilution Protection? Anti-dilution protection is a contractual right that prevents your ownership percentage in a company from decreasing when new shares are issued.
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83b Election and Stock Options
What is an 83b Election? How does th e83b election relate to Stock Options? When making an 83(b) election, you request that the IRS recognize income and levy income taxes on the acquisition of company shares when granted, rather than...
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When to Incorporate a Business Entity
When should you Incorporate a Business Entity? Incorporate before hiring employees helps to protect your assets. Businesses that have or expect to have employees should incorporate before hiring them. Employers are generally liable for...
The Business Professor
What is Growth in a Startup_
What is Growth in a Startup Venture? There's an initial period of slow or no growth while the startup tries to figure out what it's doing. As the startup figures out how to make something lots of people want and how to reach those...
The Business Professor
Voting Rights - Preferred Shares
What are Voting Rights of Preferred Shares? Preferred typically have no voting rights, whereas common stockholders do. Preferred stockholders may have the option to convert shares to common shares but not vice versa. Preferred shares may...