Taylor Legal Blog

What Should I Know Before Agreeing To Share Equity? [VIDEO]

Posted by Katherine L. Taylor, Attorney and CPA, Chief Problem SolverApr 28, 20210 Comments

Have vendors or professional advisors ever asked you to provide them an equity share in your company in exchange for their services? If so, I've got a couple of things that you're going to want to think about before you say yes. 

The first thing you need to understand is that when you provide equity shares to other people, you're basically making them owners in your business. It has to be part of a well-thought-out plan that is executed very carefully. Second, you need to ensure that your governing documents and business structure allow the kinds of equity sharing that you want to do. For instance, if you own a corporation, you have to make sure that the Articles of Incorporation or the bylaws allow you to share equity with others. If there are other shareholders involved, they are probably going to have to agree to all of the types of equity plans as well. 

Whatever you decide to do, you need to make sure it's very well documented and in compliance with the myriad of regulations out there. You're probably going to be dealing with securities regulations, tax regulations, ERISA, and more. 

This might be something that's going to work for your business, but you need to have a plan, you need to make sure you can do it, and it needs to be well documented.


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