Employee Equity Agreement

Drawing up an equity contract in a company requires advanced legal expertise in the following areas: employee capital is often granted through an employee share ownership plan (ESOP). About 7,000 companies in the United States have such projects and more than 13 million employees benefit from them. The most common way to make money with a job is to get some form of stock-based compensation. Facebook used contracts for its equity in the initial phase of its startup. After Facebook`s IPO, these ground floor employees enjoyed the fruits of their labor and a very valuable ownership interest. Yet, start-ups at the beginning often don`t have the budget to hire a dream team. This is the reason why startups often offer equity to their first employees instead of a salary. It`s not easy to know how much equity you should give your employees. Or in what form it should be done. There are a number of factors that you should include in your action plan, for example. B the unshakable employee phase, the employee position and the importance of employees to your startup. To dive deeper into the world of equity, we advise you to either start with this video from Y-Combinator that explains your options, or with this amazing thread in Quora that covers FAQs that receive a response from experienced founders.

Stock Grants is a particularly good offer for a start-up employee for three reasons: on the one hand, start-ups often only distribute a small amount of shares to themselves at first. Thus, a single shareholder owns a larger share of the company. Secondly, as a shareholder, the worker has formal rights in the company. And third, the employee can receive the shares immediately at a market price. An equity contract is a kind of employment contract that allows employees to acquire a share in your company. One of the ways to estimate the amount of equity to be offered to an employee is to first estimate the value that the employee will create for the company and calculate the “Delta”. For example, if an employee increases the value of the business by 15 percent, the delta is divided by 115 percent minus 100 percent by 115 percent, or about 13 percent. If you pay us$100,000 per year to the employee, you will charge the employee`s fees as 150 percent of salary, including overhead and margin, or $US 150,000.

If the business is worth $4 million, US$150,000 is 3.75 percent. The difference between 13 and 3.75 percent is a stock offering of 9.25 percent.