Can an independent contractor be paid in equity?

A startup may offer equity compensation to independent contractors in one of two forms: a grant of restricted stock or a stock option. The SEC provides a safe harbor exemption under Rule 701 allowing non-reporting companies to issue equity in the company as compensation to employees, consultants, and advisors.

How do you compensate with equity?

Equity compensation often goes hand-in-hand with a below-market salary. Equity compensation typically has a vesting schedule, which means that you’ll only own your equity after a certain period of time. You’re not tied to the company in the same way with salary payment.

What is the most commonly used form of equity compensation?

COMMON USAGE Although a start-up company often grants restricted stock to found- ers and initial employees, as the value of the company’s common stock rises, stock options are the most common form of equity com- pensation granted to employees.

Can independent contractors be part of an ESOP?

ESOPs normally exclude these employees, unless the related employer also adopts the plan. Independent contractors are not common law employees, should not be reported on the company’s payroll, and their remuneration for services provided should be reported on an IRS Form 1099-MISC instead of an IRS Form W-2.

What percentage of your total compensation you would like to be in the form of equity?

Overall, the total amount of equity you set aside will typically be around 5–15\%.

What are the four forms of equity?

With respect to compensation managers should address four forms of equity: External, internal, individual and procedural.

What should everyone know about equity compensation when joining a startup?

What should everyone know about equity compensation when joining a startup? Equity compensation is the practice of granting partial ownership in a company in exchange for work.

Should you run your own business or use a corporate structure?

Unlike a corporate business structure, you are not dependent on others to either run the show or pay you for your efforts. This means that you have the flexibility to decide how much you earn as a business owner, how much effort you put in, and thus earn the rewards of the efforts made. There are many advantages to running your own business.

Who should understand the intrigue of equity compensation?

Though many people learn the basic ideas from personal experience or from colleagues or helpful friends who have been through it before, the intricacies of equity compensation are best understood by tax attorneys, corporate lawyers, and other professionals.

Can equity be granted as compensation?

The ways equity can be granted as compensation—including restricted stock, stock options, and restricted stock units—are notoriously complex. Equity compensation involves confounding terminology, legal obscurities, and many high-stakes decisions for those who give and receive it.