How many new shares of stock should be issued and then rewarded to him?

Question

An acquaintance of one of the authors was about to take his startup internet company public. He owned 5% of the 900,000 shares of stock that were issued when the company was first formed. The board of directors decided to reward him by issuing additional stock so that he would then own 10% of the company.

Answer 1

Smart Guy owns 5% of 900,000 shares.
He did well in the startup and the board wants to reward him by bringing him up to 10%.

Doubling his 45,000 shares to 90,000 shares will not do it. He will own 9.52 % (90,000/ 945,000).

Companywide; new total shares

900,000 old shares + X (new shares) = 100% of new total shares= ?

 

Our Smart Guy
10% of new total shares. (900,000 + x)

Equation;
900,000 old shares + X <new shares granted> = (45,000 {old shares held} + x <shares granted>) /.10

 

900,000 +X = (45,000 + X) / .1
900,000 +X = 450,000 +10X
-450000 -X -450,000 -X
450,000 = 9X

X = 50,000 new shares

Always prof your work

New total shares 950,000 (company wide)
Held by Smart Guy 95,000 that is 45,000 (old)  and 50,000 (new)  that is 95,000/950,000 that is 10%