Many people often wonder how a company comes into being and how the Directors - as well as certain individuals - appear to have so many shares and options at the start. Good grief, we think, they've ploughed a lot of their money into this outfit and will work hard for its success because of that; or have they?
Seed capital, is paid in tranches that usually number 2 or 3. A company may require a sum of around $250,000, tranche 1. Each shareholder, normally numbering around 10, would each pay $25,000 for 25,000 B shares. Should they later enter the ASX., the Seed Capital Tranche 1 shareholders would be entitled to up to 50 times what they paid originally, when the company floats.
Seed Capital Tranche 2 would be used to secure, in the case of a mining company, tenements for future drilling and a sum of around $650,000 would be required. Tranch 1 shareholders would be issued extra free shares and a right to purchase more, if they wished to do so, in tranche 2. Tranch 2 new shareholders would be issued the shares, at say, an entitlement of 20 times the float value.
There are of course many variations.
On flotation of the company, at say $15 million, on the ASX., seed capital tranch 1 shareholders would be issued shares worth a flotation value of up to $1.25 million. There are obvious risk here.
Thus a fortune can be made by the early birds that can afford to risk $25,000 or so.
Life itself isn't fair, but then, if you'r not risk adverse you have opportunities in the future. Keep in touch with Directors of Companies, and who knows, they may let you in on a new company they're starting up.
Always remember the risks.