TLDR:
Stock splits are essential for startups that want to issue precise equity percentages to employees and investors.
A stock split is a process where a company divides its existing stocks into multiple stocks.
Stock splits are common when setting up an employee stock option plan since individual stocks cannot be split into decimals.
Stock Split Details
📈 Stock splits are important for startups that want to offer precise allocations of equity to employees or investors.For example, suppose a startup has 50 outstanding shares, and the current stock price is $20 per share. The company wants to issue an employee 1% fully diluted ownership, which would be 0.5 shares. However, the company cannot issue part of a share, so it decides to do a 2-for-1 stock split. As a result:
The number of outstanding shares doubles to 100.
The stock price per share decreases to $10.
The company can now issue one share to the employee, representing exactly 1% of the fully diluted equity.
Stock Splits in Cake
💼 You can do a stock split within your cap table on Cake, and if you need help with the legal steps, just let us know and one of our partners can assist!
Head to Cap Table from the main menu.
Go to Shareholders.
In the top right corner, click 'Actions'.
From the drop down menu, choose Share Split / Stock Split.
Enter the Split Factor and Date of Share Split and click Split. This will apply the split factor across all shareholders with holdings at the date of the split.
Get in touch with our Customer Success team through the online chat in the bottom right corner if you need to apply this to an existing stock option plan as well! We'll guide you through it 💪