Think of equity as a new American currency. Employees today frequently expect stock options as part of their compensation mix, and service providers often take equity stakes in promising start-ups as part of their fee.
But both taking and giving equity are risky and complex propositions. In his article How to Take Stock in the November 2000 issue of Inc. magazine, Ilan Mochari shares the story of Robyn Sachs, who knows about the risk involved with taking equity for services. Sachs's PR firm, RMR and Associates, received equity for services, only to see the value of its shares plummet along with the stock market. On the flip side, The Takeover, a story from the Inc. magazine archives, highlights some of the potential pitfalls of giving equity as compensation.
Given the risks involved, how does a business owner give or take equity wisely? This guide uncovers inc.com's best resources on this complex subject.
Put It in Writing
If you're sealing your deals with a handshake, beware. When it comes to handing out equity, putting the details in writing is always your best bet.
Giving equity can be a great way for small, growing companies to recruit and keep talented workers. But if you grant stock, without writing sound shareholder agreements, you could be setting yourself up for trouble.
Microsoft made millionaires out of many employees. But the same stock options that inspire loyalty can encourage the opposite behavior. Inc. senior writer Edward O. Welles reflects on the equity phenomenon.
John Lucey faced a challenge that's a perennial quandary among owners of family businesses and other closely held companies: How to compensate and motivate nonfamily managers without granting them equity. His solution? Phantom stock.