How To Split Equity In A Company Guide
•
6 likes•5,126 views
This document provides guidance on how to split equity in a company and compensate employees with equity. It outlines three major issues to consider: how much equity to give employees, when to give it, and ensuring employees can access their equity. For how much, it recommends either an equity formula approach or segmentation approach. For when to give, it advocates a vesting schedule to motivate employees over time. And to ensure access, it suggests long exercise windows so employees can access equity rights over many years to avoid tax burdens. The document was created by Raad Ahmed in April 2015 to help startup founders properly structure employee equity plans.
Recommended
More Related Content
What's hot
What's hot (20)
Viewers also liked
Viewers also liked (20)
Similar to How To Split Equity In A Company Guide
Similar to How To Split Equity In A Company Guide (20)
Recently uploaded
Recently uploaded (20)
How To Split Equity In A Company Guide
- 1. How To Split Equity In A Company By : Raad Ahmed April 2015
- 2. IT’S MINE NOW! EVERYTHING ABOUT STARTUP EQUITY
- 4. IT SEEMS LIKEYOU’RE ON THE RIGHT TRACK…
- 5. ANDYOU ARE STARTING TO HIRE EMPLOYEES…
- 6. HOW TO COMPENSATE THEM?
- 9. THERE ARE 3 MAJOR ISSUES But nothing that you couldn’t handle with a little legal help
- 10. PROBLEM 1: HOW MUCH TO GIVE? Both founders & employees deserve a premium on their risk
- 11. SOLUTION A: EQUITY FORMULA Math approach to people problem by Paul Graham
- 12. HOW DOES IT WORK? n = (i-1)/i n - value of a new employee i - how much a new employee will help the company (eg. increase
- 13. SOLUTION B: SEGMENTATION Business approach to people problem
- 14. HOW DOES IT WORK? Put your employees into segments Segment 1 Segment 2 Segment 3 First 10 employees Aggregate 10% compensation Employees 10-25 Aggregate 5% compensation Employees 25-50 Aggregate 5% compensation Those exact numbers will vary depending on a situation, but this concept ensures quite fair equity distribution
- 15. PROBLEM 2: WHEN TO GIVE? Equity should be motivating, so let’s not release it all at once
- 16. SOLUTION: VESTING A plan for giving out equity compensation
- 17. HOW DOES IT WORK? Vesting is a schedule, that plans when Employee will gain rights to all his shares after a set amount of time Motivation behind vesting is for the shares to be an ongoing motivator for an employee COMMON VESTING PLAN 4 years of vesting + 1 year cliff This should be changed to serve individual situation
- 18. PROBLEM 3: AVAILABILITY Sometimes exercising equity rights can be problematic
- 19. SOLUTION: LONG EXCERCISE WINDOWS
- 20. HOW DOES IT WORK? EXERCISE WINDOWS IS A TIME WHEN AN EMPLOYEE CAN EXERCISE HIS EQUITY RIGHTS PROBLEM = TAXES Exercising equity rights means income, which means taxes have to be payed Often more than the employee has SOLUTION Allow employees to exercise equity rights for 10 years after those are granted
- 21. SO WHAT TO DO NOW?
- 22. VISIT LAWTRADES.COM LAWTRADES REQUEST FREE QUOTES from experienced startup attorneys with no obligation to hire!