how to split equity in a company
TRANSCRIPT
![Page 1: How to Split Equity in a Company](https://reader031.vdocument.in/reader031/viewer/2022020208/55a6a15d1a28ab2d578b4700/html5/thumbnails/1.jpg)
How To Split Equity In A Company
By : Raad Ahmed
April 2015
![Page 2: How to Split Equity in a Company](https://reader031.vdocument.in/reader031/viewer/2022020208/55a6a15d1a28ab2d578b4700/html5/thumbnails/2.jpg)
IT’S MINE NOW!EVERYTHING ABOUT STARTUP EQUITY
![Page 3: How to Split Equity in a Company](https://reader031.vdocument.in/reader031/viewer/2022020208/55a6a15d1a28ab2d578b4700/html5/thumbnails/3.jpg)
BROUGHT TO YOU BY
LAWTRADES
![Page 4: How to Split Equity in a Company](https://reader031.vdocument.in/reader031/viewer/2022020208/55a6a15d1a28ab2d578b4700/html5/thumbnails/4.jpg)
IT SEEMS LIKE YOU’RE ON THE RIGHT TRACK…
![Page 5: How to Split Equity in a Company](https://reader031.vdocument.in/reader031/viewer/2022020208/55a6a15d1a28ab2d578b4700/html5/thumbnails/5.jpg)
AND YOU ARE STARTING TO HIRE EMPLOYEES…
![Page 6: How to Split Equity in a Company](https://reader031.vdocument.in/reader031/viewer/2022020208/55a6a15d1a28ab2d578b4700/html5/thumbnails/6.jpg)
HOW TO COMPENSATE THEM?
![Page 7: How to Split Equity in a Company](https://reader031.vdocument.in/reader031/viewer/2022020208/55a6a15d1a28ab2d578b4700/html5/thumbnails/7.jpg)
WITH SALARY AND…
![Page 8: How to Split Equity in a Company](https://reader031.vdocument.in/reader031/viewer/2022020208/55a6a15d1a28ab2d578b4700/html5/thumbnails/8.jpg)
EMPLOYEE EQUITY!
![Page 9: How to Split Equity in a Company](https://reader031.vdocument.in/reader031/viewer/2022020208/55a6a15d1a28ab2d578b4700/html5/thumbnails/9.jpg)
THERE ARE 3 MAJOR ISSUESBut nothing that you couldn’t handle with a little legal help
![Page 10: How to Split Equity in a Company](https://reader031.vdocument.in/reader031/viewer/2022020208/55a6a15d1a28ab2d578b4700/html5/thumbnails/10.jpg)
PROBLEM 1: HOW MUCH TO GIVE?Both founders & employees deserve a premium on their risk
![Page 11: How to Split Equity in a Company](https://reader031.vdocument.in/reader031/viewer/2022020208/55a6a15d1a28ab2d578b4700/html5/thumbnails/11.jpg)
SOLUTION A: EQUITY FORMULAMath approach to people problem
by Paul Graham
![Page 12: How to Split Equity in a Company](https://reader031.vdocument.in/reader031/viewer/2022020208/55a6a15d1a28ab2d578b4700/html5/thumbnails/12.jpg)
HOW DOES IT WORK?
n = (i-1)/in - value of a new employeei - how much a new employee will help the company (eg. increase
![Page 13: How to Split Equity in a Company](https://reader031.vdocument.in/reader031/viewer/2022020208/55a6a15d1a28ab2d578b4700/html5/thumbnails/13.jpg)
SOLUTION B: SEGMENTATIONBusiness approach to people problem
![Page 14: How to Split Equity in a Company](https://reader031.vdocument.in/reader031/viewer/2022020208/55a6a15d1a28ab2d578b4700/html5/thumbnails/14.jpg)
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
![Page 15: How to Split Equity in a Company](https://reader031.vdocument.in/reader031/viewer/2022020208/55a6a15d1a28ab2d578b4700/html5/thumbnails/15.jpg)
PROBLEM 2: WHEN TO GIVE?Equity should be motivating, so let’s not release it all at once
![Page 16: How to Split Equity in a Company](https://reader031.vdocument.in/reader031/viewer/2022020208/55a6a15d1a28ab2d578b4700/html5/thumbnails/16.jpg)
SOLUTION: VESTINGA plan for giving out equity compensation
![Page 17: How to Split Equity in a Company](https://reader031.vdocument.in/reader031/viewer/2022020208/55a6a15d1a28ab2d578b4700/html5/thumbnails/17.jpg)
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 PLAN4 years of vesting + 1 year cliff
This should be changed to serve individual situation
![Page 18: How to Split Equity in a Company](https://reader031.vdocument.in/reader031/viewer/2022020208/55a6a15d1a28ab2d578b4700/html5/thumbnails/18.jpg)
PROBLEM 3: AVAILABILITYSometimes exercising equity rights can be problematic
![Page 19: How to Split Equity in a Company](https://reader031.vdocument.in/reader031/viewer/2022020208/55a6a15d1a28ab2d578b4700/html5/thumbnails/19.jpg)
SOLUTION: LONG EXCERCISE WINDOWS
![Page 20: How to Split Equity in a Company](https://reader031.vdocument.in/reader031/viewer/2022020208/55a6a15d1a28ab2d578b4700/html5/thumbnails/20.jpg)
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
SOLUTIONAllow employees to exercise equity rights for
10 years after those are granted
![Page 21: How to Split Equity in a Company](https://reader031.vdocument.in/reader031/viewer/2022020208/55a6a15d1a28ab2d578b4700/html5/thumbnails/21.jpg)
SO WHAT TO DO NOW?
![Page 22: How to Split Equity in a Company](https://reader031.vdocument.in/reader031/viewer/2022020208/55a6a15d1a28ab2d578b4700/html5/thumbnails/22.jpg)
VISIT
LAWTRADES.COM
LAWTRADES
REQUEST FREE QUOTES from experienced startup attorneys
with no obligation to hire!