Legal Advice on Taking Equity As Compensation When You go to Work for a Company

On a business/company start-up email list I subscribe to, someone asked for advice in the  negotiation of taking equity as compensation (either equity alone or equity and salary) when you go to work for a company. Here is one item that is often overlooked: after you get an equity offer from the company, have them put it in writing, and get it reviewed by an attorney. Too often I see poorly worded offer letters that include vague phrases that only lead to confusion or disappointment later.

For example, the offer letter might say that you will get three percent of the company. What does this mean? Three percent as of the date of the offer? when the options vest? before or after that next major round of equity financing? When calculating percentages, the company includes actually issued stock. Does it also include vested stock options? issued but not yet vested stock options? You get the idea.

Make sure your attorney reviews all of the related documents. Even though it may cost you a little more, it will be worth it in the long run. In law the fine details matter. More often than you would think, I find unpleasant legal terms in the related documentation that my client needs to know about. For more discussion on this issue, see my blog article The Lesson from Skype: Don’t Count Your Stock Options Before They Hatch.

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