NCPA - National Center for Policy Analysis

Owners Of Small Companies Handing Out Stock

December 14, 1998

Founders of small firms are transferring chunks of stock to employees and financiers at such a rate that they are losing control of their companies, observers report.

  • The average portion of stock held by the chief executive or president of a company with less than $10 million in annual sales dropped to 39 percent this year from 48 percent in 1996, according to data collected by Segal Company, a benefits-consulting firm.
  • Shares are being distributed to employees, owners say, because as stakeholders they work harder -- and the shares are also being offered to attract top-notch talent.
  • Financiers -- once satisfied to accept debt -- are increasingly demanding hefty stakes in exchange for desperately needed capital.

Observers say that the trend -- most apparent among high-tech companies, where venture capitalists have traditionally taken stock in exchange for financial support -- reportedly appears to have spread into all types of small businesses.

Sources: Rodney Ho and Dan Morse, "Small-Business Chiefs Loosen the Reins," Wall Street Journal, December 14, 1998.


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