equityRecently I was offered some salary + equity (less than 5%) in a revenue generating startup, which I have done contract business earlier. I live out of US, but the company is in US. So I have some questions:
1) Is it even possible for me to have an equity in a US company without ever going to US?
2) Is there any risks involved with the equity? I mean if the startup bankrupts with debt, will they require me to pay my share of that debt?
3) Is there any procedures to follow while giving/taking equity or a simple signature is enough?
Thank you.
1) Is it even possible for me to have an equity in a US company without ever going to US?
Yes.
2) Is there any risks involved with the equity?
Yes.
The main risk is mistaking equity for money. Companies will almost always want you to accept them instead of salary, and want you to believe there’s some magical pixie dust on them that make them worth more than the salary they’re replacing. But the truth is most equity ends up worthless. It won’t help you pay your bills so don’t discount real money. It’s saner to think of equity, in any form, as a bonus lottery ticket that comes in addition to a normal salary. Unless you’re joining a clear runaway success, your working assumption should be that it’ll be worth zero.
Also, equity usually comes with a laundry list of gotchas, ranging from the founders and/or VCs enjoying different classes of shares to fiscal implications upon receiving or selling them.
I mean if the startup bankrupts with debt, will they require me to pay my share of that debt?
No. When a company goes bankrupt, its assets are put in receivership and used to cover its liabilities in order of seniority. Typically, this means paying unpaid taxes, unpaid salaries, unpaid debts, and finally returning the balance to shareholders. If money runs out before everyone gets paid, then whichever creditors remain get nada.
3) Is there any procedures to follow while giving/taking equity or a simple signature is enough?
Technically yes, but mind the above-mentioned laundry list of gotchas. The two main things to look out for are what happens in case of dilutions, and figuring out your tax implications. You’d ideally want a local lawyer and/or accountant involved to cross t’s and dot i’s.
With all the above said, note that you’re being offered equity rather than stock options. IMHO that’s a pretty good sign your employer has good intentions.
All content is licensed under CC BY-SA 3.0.