How should equity be written on legal documents; In terms of number of shares, or percentage?

Asked over 1 year ago - Los Angeles, CA

I am joining a technology startup as a CTO. I have been offered equity by the company as well as co founder title. The documents I will be signing have listed the vesting schedule and the amount of equity I will be receiving. The documents I am referring to are: restricted stock purchase agreement and the employee proprietary information and inventions agreement.

Attorney answers (3)

  1. Mark S Britton

    4

    Lawyers agree

    Answered . First of all, you are smart to be thinking about your grant as a percentage rather than an absolute number. However, that is a percentage of the fully diluted equity *at the time of your grant.* That is what Dana is speaking to, and I agree with him.

    However, there is sometimes confusion between the percentage offered and the actual number of shares granted thereunder. To ensure you are getting the percentage you expect, you can do one of two things: (1) Get the fully diluted equity number from the company (i.e., stock outstanding, plus any shares underlying options and other derivatives), multiply FDE by your expected percentage and then make sure that the product (absolute number of shares to be granted to you) is in your offer letter. OR (2) Have the offer letter express both the absolute number of shares to be granted to you *plus* a confirmation that this is x% of the FDE at the time of grant. #1 is usually how it is done; but, if the company really sold you on a percentage of equity, then #2 is reasonable.

    Good luck and congrats on your offer.

    Mark Britton
    Avvo CEO (and former corporatate lawyer :-))

  2. Dana Howard Shultz

    Contributor Level 20

    1

    Lawyer agrees

    1

    Answered . Equity typically is expressed as a number of shares.

    Expressing equity as a percentage suggests that the recipient has anti-dilution protection (the percentage will be maintained, even as additional shares are issued to employees, directors, investors, etc.) - protection that a knowledgeable company is unlikely to grant.

    This information does not constitute legal advice and does not establish an attorney-client relationship.
  3. Michael Charles Doland

    Contributor Level 20

    Answered . It can be either way, but oth the number or percentage need to be "of what". Normally the answer is either "authorized" or," authorized issued and outstanding"

    Respectfully, you really need to consider having an attorney review such a technical document and should not think that the English used in it has a "plain meaning". It doesn't. If you will also be a director, you are even more advised to have independent legal counsel.

    Good luck with the venture.

    The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may... more

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