{"id":75699,"date":"2018-04-25T14:52:11","date_gmt":"2018-04-25T21:52:11","guid":{"rendered":"https:\/\/spring.is\/old\/?p=75699"},"modified":"2019-07-12T01:24:48","modified_gmt":"2019-07-12T08:24:48","slug":"legal-basics-equity-compensation","status":"publish","type":"post","link":"https:\/\/spring.is\/old\/blog\/legal-basics-equity-compensation\/","title":{"rendered":"What The L || What the Law: The Legal Basics of Equity Compensation"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"75699\" class=\"elementor elementor-75699 elementor-bc-flex-widget\" data-elementor-post-type=\"post\">\n\t\t\t\t\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-8e11815 elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"8e11815\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-3b1c9cf\" data-id=\"3b1c9cf\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t\t\t<div class=\"elementor-element elementor-element-e9ca219 elementor-widget elementor-widget-text-editor\" data-id=\"e9ca219\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t<style>\/*! elementor - v3.16.0 - 13-09-2023 *\/\n.elementor-widget-text-editor.elementor-drop-cap-view-stacked .elementor-drop-cap{background-color:#69727d;color:#fff}.elementor-widget-text-editor.elementor-drop-cap-view-framed .elementor-drop-cap{color:#69727d;border:3px solid;background-color:transparent}.elementor-widget-text-editor:not(.elementor-drop-cap-view-default) .elementor-drop-cap{margin-top:8px}.elementor-widget-text-editor:not(.elementor-drop-cap-view-default) .elementor-drop-cap-letter{width:1em;height:1em}.elementor-widget-text-editor .elementor-drop-cap{float:left;text-align:center;line-height:1;font-size:50px}.elementor-widget-text-editor .elementor-drop-cap-letter{display:inline-block}<\/style>\t\t\t\t<p><i><span style=\"font-weight: 400;\">By Charlotte Teal and Kwang Lim<br \/><\/span><\/i><img decoding=\"async\" loading=\"lazy\" class=\"wp-image-76213 alignleft\" src=\"https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/06\/bennettjones_logo__Hor-Colour.png\" alt=\"Bennett Jones\" width=\"200\" height=\"68\" srcset=\"https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/06\/bennettjones_logo__Hor-Colour.png 3337w, https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/06\/bennettjones_logo__Hor-Colour-300x101.png 300w, https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/06\/bennettjones_logo__Hor-Colour-768x259.png 768w, https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/06\/bennettjones_logo__Hor-Colour-1024x346.png 1024w, https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/06\/bennettjones_logo__Hor-Colour-100x34.png 100w, https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/06\/bennettjones_logo__Hor-Colour-360x121.png 360w\" sizes=\"(max-width: 200px) 100vw, 200px\" \/><i><span style=\"font-weight: 400;\">\u00a0<\/span><\/i><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-8f0a3aa elementor-widget elementor-widget-text-editor\" data-id=\"8f0a3aa\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<h2><b>The Dilemma<\/b><\/h2><p><span style=\"font-weight: 400;\">Start-up companies face the ultimate dilemma: how to compensate, incentivize, and retain quality employees at a time when (most) start-ups are strapped for cash and consequently unable to compete with the higher salaries often offered to, and expected by, top tier employees. While not necessarily intended to replace employees\u2019 salaries, equity compensation programs are tools that can help recruit, retain, and incentivize employees to take a chance (and likely a pay cut) at a startup company. Employee interests, however, need to be balanced with shareholder and investor interests; these are not always aligned. <\/span><\/p><p><span style=\"font-weight: 400;\">This blog post is meant to provide a preliminary introduction into the world of equity compensation programs and help you consider whether an equity compensation program is right for your company.<\/span><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-280c4af elementor-widget elementor-widget-text-editor\" data-id=\"280c4af\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<h2><b>What is Equity Compensation?<\/b><\/h2><p><span style=\"font-weight: 400;\">Equity compensation is used as an inventive tool to align employee interests with the growth objectives of the company. By granting equity to employees, the company grants its employees rights to securities linked to the value of the company. <\/span><\/p><p><span style=\"font-weight: 400;\">There are various types of equity compensation. Equity compensation packages are not \u201cone size fits all\u201d, and the appropriate type of compensation will depend on the circumstances and objectives of each individual company. This blog post will not go into detail, however as a brief introduction, some of the types of equity grants available are:<\/span><\/p><h3><span style=\"font-weight: 400;\">1. Share Grants<\/span>:\u00a0<\/h3><p><span style=\"font-weight: 400;\">Employees are issued shares as they join the company or gradually over time.<br \/><\/span><\/p><h3><span style=\"font-weight: 400;\">2. Stock Options:<\/span><\/h3><p><span style=\"font-weight: 400;\">Employees have a contractual right to purchase shares at a specified price (typically fair market value at the time the option is granted) for a set period of time.<\/span><\/p><h3><span style=\"font-weight: 400;\">3. Restrictive Share Units (RSUs):<\/span><\/h3><p><span style=\"font-weight: 400;\">Employees have a contingent right to receive shares or a cash equivalent to the value of the shares, based on reaching certain future dates or milestones and continued employment.<\/span><\/p><h3><span style=\"font-weight: 400;\">4. Deferred Share Units (DSUs):<\/span><\/h3><p><span style=\"font-weight: 400;\">Like RSUs, employees have a contingent right to receive shares or a cash equivalent of the shares, however the award does not vest until death, termination of employment, or retirement.<\/span><\/p><h3><span style=\"font-weight: 400;\">5. Share Appreciation Rights (SARs)<\/span><\/h3><p><span style=\"font-weight: 400;\">Employees have a right to receive a payment in cash or shares that represents the increase in value of the shares of the company, calculated over a defined vesting period.<\/span><\/p><h3><span style=\"font-weight: 400;\">6. Phantom Share Plans:<\/span><\/h3><p><span style=\"font-weight: 400;\">Employees do not get actual shares, but get an interest in the company that is linked to the shares; employees receive an account with a specified number of phantom (hypothetical) shares.<\/span><\/p><p>\u00a0<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-c7a83a0 elementor-widget elementor-widget-image\" data-id=\"c7a83a0\" data-element_type=\"widget\" data-widget_type=\"image.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t<style>\/*! elementor - v3.16.0 - 13-09-2023 *\/\n.elementor-widget-image{text-align:center}.elementor-widget-image a{display:inline-block}.elementor-widget-image a img[src$=\".svg\"]{width:48px}.elementor-widget-image img{vertical-align:middle;display:inline-block}<\/style>\t\t\t\t\t\t\t\t\t\t\t\t<img decoding=\"async\" loading=\"lazy\" width=\"640\" height=\"427\" src=\"https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/04\/beverage-black-coffee-business-33972-1024x683.jpg\" class=\"attachment-large size-large wp-image-75703\" alt=\"\" srcset=\"https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/04\/beverage-black-coffee-business-33972-1024x683.jpg 1024w, https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/04\/beverage-black-coffee-business-33972-300x200.jpg 300w, https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/04\/beverage-black-coffee-business-33972-768x512.jpg 768w, https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/04\/beverage-black-coffee-business-33972-98x65.jpg 98w, https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/04\/beverage-black-coffee-business-33972-360x239.jpg 360w, https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/04\/beverage-black-coffee-business-33972-272x182.jpg 272w, https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/04\/beverage-black-coffee-business-33972.jpg 2048w\" sizes=\"(max-width: 640px) 100vw, 640px\" \/>\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-95e2983 elementor-widget elementor-widget-text-editor\" data-id=\"95e2983\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<h2><b>Why Consider Equity Compensation?<\/b><\/h2><p><span style=\"font-weight: 400;\">Equity compensation can have many benefits, including:<\/span><\/p><ol><li><span style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Helping cash-strapped companies conserve cash for other expenses.<\/span><\/span><\/span><\/li><li><span style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Helping a company recruit talented employees by offering them the opportunity to participate in the potential upside of the company\u2019s success.<\/span><\/span><\/span><\/li><li><span style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Incentivizing employees to work hard by aligning an employee\u2019s goals with those of the company, as their opportunity to profit depends on the success of the company.<br \/><\/span><\/span><\/li><li><span style=\"font-weight: 400;\">Helping a company retain employees and avoid high turnover as employees\u2019 equity rights are often subject to vesting schedules, meaning that an employee cannot acquire the equity (or cash, depending on the type of compensation program) until a specified date.<\/span><\/li><\/ol><p><span style=\"font-weight: 400;\">However, while there are benefits, there are also costs to implementing equity compensation:<\/span><\/p><ol><li><span style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Awarding equity compensation engages various areas of law, and companies will need to familiarize themselves with the legal requirements and legal consequences.<\/span><\/span><\/span><\/span><\/span><\/li><li><span style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Depending on the type of equity granted (for example, if shares are granted to employees), the company will, to a certain extent, democratize ownership, which can impact how a company is run and can impact investor interests.<\/span><\/span><\/span><\/span><\/span><\/span><\/li><li>As equity compensation structures will have tax implications for the company and the employees, a company should be prepared to consult with a tax lawyer.<\/li><li>If it is likely that the company will eventually be sold, equity compensation programs can make merger and acquisition transactions more complex. In addition, if the company is planning to go public in the future, the legal requirements of the relevant stock exchange ought to be considered.<\/li><\/ol><p><span style=\"font-weight: 400;\">Equity compensation programs can be a great tool for start-up companies to attract, retain, and incentivize employees. However, they are notably complex and must be carefully considered. Companies should consider how they plan to compensate their employees early, before recruiting key employees and executive members. <\/span><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-1d7a253 elementor-widget elementor-widget-image\" data-id=\"1d7a253\" data-element_type=\"widget\" data-widget_type=\"image.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<img decoding=\"async\" loading=\"lazy\" width=\"640\" height=\"216\" src=\"https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/06\/bennettjones_logo__Hor-Colour-1024x346.png\" class=\"attachment-large size-large wp-image-76213\" alt=\"Bennett Jones\" srcset=\"https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/06\/bennettjones_logo__Hor-Colour-1024x346.png 1024w, https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/06\/bennettjones_logo__Hor-Colour-300x101.png 300w, https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/06\/bennettjones_logo__Hor-Colour-768x259.png 768w, https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/06\/bennettjones_logo__Hor-Colour-100x34.png 100w, https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/06\/bennettjones_logo__Hor-Colour-360x121.png 360w\" sizes=\"(max-width: 640px) 100vw, 640px\" \/>\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-0d79103 elementor-widget elementor-widget-text-editor\" data-id=\"0d79103\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<p><span style=\"font-weight: 400;\">The views and comments expressed in this blog post are those of the authors and do not represent the views of Bennett Jones LLP. This blog was prepared for informational purposes only, and should not in any way be construed as legal advice. Entrepreneurs and companies contemplating financing should seek legal advice. If you are considering offering equity compensation to your employees, Bennett Jones would be pleased to help you determine which option is best for your company.<\/span><\/p><p><span style=\"font-weight: 400;\">If you have any ideas for future blog posts, please contact:\u00a0<br \/><\/span><a style=\"font-size: 16px; background-color: #ffffff;\" href=\"mailto:limk@bennettjones.com\">limk@bennettjones.com<\/a><br \/><a style=\"font-size: 16px; background-color: #ffffff;\" href=\"mailto:tealc@bennettjones.com\">tealc@bennettjones.com<\/a><br \/><a style=\"font-size: 16px; background-color: #ffffff;\" href=\"mailto:struthersj@bennettjones.com\">struthersj@bennettjones.com<\/a><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-86b7ba4 elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"86b7ba4\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-475befc\" data-id=\"475befc\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t\t\t<div class=\"elementor-element elementor-element-969bfe4 elementor-widget elementor-widget-spacer\" data-id=\"969bfe4\" data-element_type=\"widget\" data-widget_type=\"spacer.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t<style>\/*! elementor - v3.16.0 - 13-09-2023 *\/\n.elementor-column .elementor-spacer-inner{height:var(--spacer-size)}.e-con{--container-widget-width:100%}.e-con-inner>.elementor-widget-spacer,.e-con>.elementor-widget-spacer{width:var(--container-widget-width,var(--spacer-size));--align-self:var(--container-widget-align-self,initial);--flex-shrink:0}.e-con-inner>.elementor-widget-spacer>.elementor-widget-container,.e-con>.elementor-widget-spacer>.elementor-widget-container{height:100%;width:100%}.e-con-inner>.elementor-widget-spacer>.elementor-widget-container>.elementor-spacer,.e-con>.elementor-widget-spacer>.elementor-widget-container>.elementor-spacer{height:100%}.e-con-inner>.elementor-widget-spacer>.elementor-widget-container>.elementor-spacer>.elementor-spacer-inner,.e-con>.elementor-widget-spacer>.elementor-widget-container>.elementor-spacer>.elementor-spacer-inner{height:var(--container-widget-height,var(--spacer-size))}.e-con-inner>.elementor-widget-spacer.elementor-widget-empty,.e-con>.elementor-widget-spacer.elementor-widget-empty{position:relative;min-height:22px;min-width:22px}.e-con-inner>.elementor-widget-spacer.elementor-widget-empty .elementor-widget-empty-icon,.e-con>.elementor-widget-spacer.elementor-widget-empty .elementor-widget-empty-icon{position:absolute;top:0;bottom:0;left:0;right:0;margin:auto;padding:0;width:22px;height:22px}<\/style>\t\t<div class=\"elementor-spacer\">\n\t\t\t<div class=\"elementor-spacer-inner\"><\/div>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-b6cecd1 elementor-widget elementor-widget-heading\" data-id=\"b6cecd1\" data-element_type=\"widget\" data-widget_type=\"heading.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t<style>\/*! elementor - v3.16.0 - 13-09-2023 *\/\n.elementor-heading-title{padding:0;margin:0;line-height:1}.elementor-widget-heading .elementor-heading-title[class*=elementor-size-]>a{color:inherit;font-size:inherit;line-height:inherit}.elementor-widget-heading .elementor-heading-title.elementor-size-small{font-size:15px}.elementor-widget-heading .elementor-heading-title.elementor-size-medium{font-size:19px}.elementor-widget-heading .elementor-heading-title.elementor-size-large{font-size:29px}.elementor-widget-heading .elementor-heading-title.elementor-size-xl{font-size:39px}.elementor-widget-heading .elementor-heading-title.elementor-size-xxl{font-size:59px}<\/style><h2 class=\"elementor-heading-title elementor-size-default\">Are you hiring and want to get access to aligned candidates?<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-7fcebe3 elementor-widget elementor-widget-image\" data-id=\"7fcebe3\" data-element_type=\"widget\" data-widget_type=\"image.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<img decoding=\"async\" loading=\"lazy\" width=\"400\" height=\"200\" src=\"https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/04\/https252f252fcdn.evbuc_.com252fimages252f43801598252f89080940963252f1252foriginalcopy.png\" class=\"attachment-large size-large wp-image-75709\" alt=\"Career Fair\" srcset=\"https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/04\/https252f252fcdn.evbuc_.com252fimages252f43801598252f89080940963252f1252foriginalcopy.png 400w, https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/04\/https252f252fcdn.evbuc_.com252fimages252f43801598252f89080940963252f1252foriginalcopy-300x150.png 300w, https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/04\/https252f252fcdn.evbuc_.com252fimages252f43801598252f89080940963252f1252foriginalcopy-100x50.png 100w, https:\/\/spring.is\/old\/wp-content\/uploads\/2018\/04\/https252f252fcdn.evbuc_.com252fimages252f43801598252f89080940963252f1252foriginalcopy-360x180.png 360w\" sizes=\"(max-width: 400px) 100vw, 400px\" \/>\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-6a894f5 elementor-widget elementor-widget-text-editor\" data-id=\"6a894f5\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<p>Spring is holding our 2nd\u00a0<a href=\"https:\/\/www.eventbrite.com\/e\/impact-career-fair-tickets-44462853592\" target=\"_blank\" rel=\"noopener noreferrer noopener noreferrer noopener noreferrer\">Impact Career Fair<\/a>\u00a0on June 6th. At our first event, there were 400 impact aligned job seekers in attendance and all of the showcasing companies had a chance to meet and chat with them. Interested in having a booth?\u00a0<a href=\"https:\/\/docs.google.com\/forms\/d\/e\/1FAIpQLScp91lW7GI4uZUkCDk_2t2jn-3mJ99iVpZdpTNmy3MeIBVjuA\/viewform?usp=sf_link\" target=\"_blank\" rel=\"noopener noreferrer noopener nofollow noopener noreferrer nofollow noreferrer nofollow\">Let us know here.<\/a><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-29977a5 elementor-widget elementor-widget-spacer\" data-id=\"29977a5\" data-element_type=\"widget\" data-widget_type=\"spacer.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t<div class=\"elementor-spacer\">\n\t\t\t<div class=\"elementor-spacer-inner\"><\/div>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>By Charlotte Teal and Kwang Lim \u00a0 The Dilemma Start-up companies face the ultimate dilemma: how to compensate, incentivize, and retain quality employees at a time when (most) start-ups are strapped for cash and consequently unable to compete with the higher salaries often offered to, and expected by, top tier &hellip;<\/p>\n","protected":false},"author":15,"featured_media":75700,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[30,23],"tags":[1009,530,996,1000,1007,999,1003,909,998,1004,1011,1001,997,938,1010,1006,1002,1005,1008,356,156,290,896,1012,1013],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v21.1 - 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