How to Post Founders' Shares in Accounting

by D. Laverne O'Neal, studioD

Founders' shares, also referred to as restricted stock, are stock shares granted to the founders or very early participants in a startup company. Founders' shares typically vest over a certain period of years. This type of stock, not to be confused with a stock option, can be repurchased by the corporation if the founders' shares owner leaves the company within the vesting period. Unlike stock options, the holding period of founders' shares begins at the company's inception, rather than at the point in time when options are exercised.

Divide the number of founders' shares granted by the number of years in the vesting period. For example, if a company grants 2,000 shares with a vesting period of five years, you would divide 2,000 by 5 to arrive at 400.

Multiply the number of shares to vest each year by the per-share value at the company's inception. To continue with the above example, assume a value at inception of $10 per share. Multiply 400 X $10 to arrive at $4,000.

Debit $4,000 at the end of the first year as compensation expense.

Credit common stock for the par value of the vested shares. For example, assume after a year, the common stock value has reached $15 per share. 400 X $15 = $6,000.

Credit Additional Paid-In Capital for the difference between par value and the value at inception. In the example, $6,000 - $4,000 = $2,000.

About the Author

D. Laverne O'Neal, an Ivy League graduate, published her first article in 1997. A former theater, dance and music critic for such publications as the "Oakland Tribune" and Gannett Newspapers, she started her Web-writing career during the dot-com heyday. O'Neal also translates and edits French and Spanish. Her strongest interests are the performing arts, design, food, health, personal finance and personal growth.

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