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What are important things to consider when paying an offshore developer equity compensation for your startup?

Austin, TX |

I've been working with an offshore freelance developer whos been really good. I want her to join our team as CTO and pay her in equity. The contract will:

give the developer 30% equity vested over 2 years
I will have full control over the company decisions
All IP will belong to company
Developer will be paid whenever I get paid. I have the final say in whether revenue is invested back into company or is paid as dividends for those with equity.

Is there anything wrong with the above? And is there any other important factors I have to consider in the contract?

Attorney Answers 3


Way, way too broad of a question to answer with so few facts. You need to speak with a business lawyer in Austin about it.

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Important things? Well, there would be repurchase rights, triggers on organic transactions, dispute resolution, indemnification, confidentiality, setoff rights, among a few terms. Before considering the contractual terms a good business attorney would advise you about the legal and tax issues related to different forms of equity compensation including structures like profits interests, equity appreciation rights, or phantom units. Straight equity may hardly be ideal on a tax or legal basis for the company. The IP assignment terms will be critical and screwing this up will be very costly.

As to your terms, if she actually agreed to giving you such unfettered rights, you can thank your lucky stars that she did not think to talk to a business attorney. In short, trying to do this yourself is hardly a prudent idea as you are walking into a complex legal, tax, and intellectual property minefield. Retain counsel before you even consider proposing this.

This answer is for informational purposes only and is not legal advice regarding your question and does not establish an attorney-client relationship.

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Additional items of importance:

Will she be relocating to Austin as part of her job requirements? If so, have you consulted with an immigration attorney about work visa issues? If not, have you consulted with a tax attorney on international withholding issues?

From the securities law side, you need to consider whether there are any securities regulatory hurdles in her country to offering her equity (assuming she is not relocating to Austin).

As previously mentioned, you have a lot of complex legal issues that may require you retaining multiple attorneys.

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