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The Ins and Outs of Equity Compensation

The Ins and Outs of Equity Compensation

Photo Credit: Emilio Labrador

Money; it’s a form of compensation used in every country that for centuries has determined the success of any given business man, company or product at a given time. We are living in a new day and age with new financial and economic trends popping up almost every day.  With the American economy in the state that it is currently in, entrepreneurs and small business owners are forced to find innovative ways to grow their businesses. Equity Compensation has been a topic of discussion and debate amongst the world of finance for years and the concept that is considered not only innovative but intuitive has been popular in Silicon Valley for over 20 years and gradually spread across the country.

What is Equity Compensation?

Equity compensation is a non-cash form of payment that represents a form of company ownership. Often times a new or emerging business will offer stock options to their employees as part of their compensation for work or service. This can include the opportunity to purchase stock at a discounted or fixed rate.

Equity compensation has the potential to be a very rewarding method of business for a new or emerging entrepreneur. As with any financial trend, there are tips for maximizing the success of a new company’s effort at equity compensation.

Understand All Aspects: As with any new venture or addition to your company’s structure, you must understand all aspects of the concept before you make any decisions. If the concept of equity compensation does not fit into the goals of your company, then it is not logical to implement it into the long term.

Know Your Options: There are multiple forms of stock options that an employer can offer their employees as a form of compensation. Doing your continued research will keep you on top of your game and will equip you with the tools you need to offer the most logical option to your employees. Whether that is a non- qualified stock option or an incentive stock option, staying educated will benefit all parties involved.

Put Everything in Writing: Having a written agreement will undoubtedly remove all possible trouble that could arise from a verbal agreement sealed with a handshake. Be sure to have well thought out phrasing within any contractual agreements and always seek legal counsel when creating a document that will act as a legally binding contract.

Know Your Boundaries: There are different tax laws for different business concepts and sizes. Be sure to fully understand the limits that have been set forth for you by the laws of your area.

Equity compensation can make all the difference to a company hoping to grow and get off the ground in a timely and successful manner. As always, consider consulting a professional organization like Stock Connections if you have any questions or concerns regarding equity compensation and how to implement the concept into your business structure.

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