Recently a student nearing graduation mentioned that he
was interested in a smaller company that might offer him
equity in partial payment for salary.
That got me to thinking about the term equity and the things
one should seek and ask about equity.
As an employee for two firms that offered equity as ESOPs
(employee stock ownership plans) I learned that employees
are given or offered various forms of equity in return for
certain things put forward in an equity plan. One of the
ESOPs I earned yielded a net gain, one was an utter loss.
I am told that my .500 batting average is quite good.
Al Sklover discusses equity offerings as being of several
varieties determined by conditions, limitations and obligations.
Terms such as vesting, purchase price, strike price, and
who manages the account are important details.
There is a tax advantage and a business need that usually
give rise to equities.
A good idea is to seek legal counsel in understanding the
pros and cons of equity arrangements. Sklover counsels:
“The large print giveth and the small print taketh away.”
[See Sklover for an actual case study.]