Key Issues of Stock Compensation

Nowadays stock compensation is a popular widely spread way to supplement traditional compensation and provide additional incentives to people who are involved in the building of the business. Different types of equity compensation are discussed in other articles on this website. Here let’s discuss main point to consider when structuring equity compensation package.


1.      What percentage of company’s equity will be allocated for founders, future hires, and investors?

2.      What type of equity compensation the company may be willing to offer with consideration of tax treatment, equity dilution, and growth projections?

3.      What would be acceptable consideration for the equity - cash, contribution of intellectual property, some assets, or other?

4.      What contractual restrictions are necessary to ensure that interests of the grantees are aligned with the long-term goals of the company?

5.      If vesting is imposed, will it be time-based or performance-based?

6.      What responsibilities each form of equity compensation puts on the company and potential grantees?

7.      How equity compensation should be structured to comply with the tax code?

8.      How fair market value of the stock at the time of grant will be determined?

9.      Current and future financial and equity needs of the company


Stock compensation packages should also be in compliance with federal and state securities and tax laws. Assistance of the experienced business counsel in this matter is invaluable.

More in this category: « IRS Section 409A Phantom stock »

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