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Choosing the Right Type of Equity Compensation for Startup Company Employees
Practical Law Legal Update 7-600-9487 (Approx. 2 pages)
Choosing the Right Type of Equity Compensation for Startup Company Employees
by Practical Law Employee Benefits & Executive Compensation
| Published on 18 Feb 2015 • USA (National/Federal) |
Every startup company must grant the right type of equity compensation awards to avoid causing its employees tax problems that can result from a company's failure to understand the tax consequences of certain types of awards.
Many startup companies include equity as a part of their employees' compensation packages to let employees earn additional income beyond their salaries (which may be below market due to cash constraints) and acquire an ownership interest in the company. Startup companies must grant the right types of equity compensation awards to avoid causing their employees tax problems.
- Discusses the basic characteristics, federal tax consequences, accounting treatment, and advantages and disadvantages of granting restricted stock, stock options and restricted stock units.
- Describes the types of equity awards typically used by a startup company at each stage of its development.
- Highlights other issues a startup company should consider when granting equity, including appropriate valuation methods.