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How do I negotiate and value my sweat equity for stock in a tech corporation? What is the process and what should I look for?

San Jose, CA |

I have been working for a tech company currently in its startup phase for the past 6 months or so with many long nights and sunrises. Being an entrepreneur myself I know time is very important to get our product to market so I have been putting off negotiating my end. I have been wearing many hats within the company to help generate materials for VC investment. I have written the business plan and been crucial to many aspects of developing the business and financial models. I understand that I need to be compensated for my previous and future services. I would rather take equity now as I do not want to hinder the startup's cash flow. What are the steps I should take? What contract do I use? How and when is the stock transferred? Is there a guideline to follow here? Thanks!!!

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Attorney answers 5

Posted

First, does the company feel the same way? Have they made an offer? They will likely have a document giving you stock options or stock, and there really isn't much special that you need to do. It isn't clear whether you are indicating that there is something owed you, or whether you think that the company should reward you for good service.

The above is not intended to be legal advice, but may be used for general information. Please contact an attorney for specific help tailored to your needs. www.figgardenlaw.com

Asker

Posted

Hello Sean. Thanks for the quick response. Yes. They do. We have thrown some numbers around but nothing has been solidified yet. We have just been very busy (which is no excuse). Should I try to personally take equity in my name or use my own LLC? I have put in a lot of work and sweat equity and would like to be compensated in stock for my services and have a place in the company moving forward when it starts making money. I believe in the technology and I'm basically working full time and helping the company move forward substantially. Once we talk about the terms and agree verbally, what is the next step? What kind of contract should I use and what is the process when issuing stock?

Posted

Part of your question is business negotiation, not law, and no one on Avvo knows you, your company or any other aspect. If the company as a matter of business does not offer it to you, end of story: you have no rights to an equity participation.

If the company does offer equity ownership, they will be preparing the documents. You will need an experienced securities lawyer to review it all and give you customized advice based on your needs and the complanies capacities.

There is no "standard" form to negotiate what you seek or the documents you will receive.

The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.

Asker

Posted

Should do this personally or have my LLC take ownership of the stock?

Michael Charles Doland

Michael Charles Doland

Posted

It's a really good question. The reason that lawyers interview clients is that "generic" answers, while fast and apparently helpful, just aren't customized to the client's needs. Your individual tax situation and goals, e.g. desire to make pension contributions,, would be necessary for a good answer. Generically, it can be done either way.

Posted

I agree with my colleagues.

Assuming that the corporation is willing to grant you an equity stake, it is up to the corporation - hopefully using legal counsel,so everything is done properly - to prepare the paperwork. All you can do is push management to do so.

There is no formula for the amount you are entitled to receive - it is whatever the parties agree upon.

Once you receive the paperwork, you should retain you own lawyer to review it.

This information does not constitute legal advice and does not establish an attorney-client relationship.

Posted

You should speak with an Attorney. A big part of your questions and concerns fall under the umbrella of negotiation. To properly advice you, a lawyer will need to sit with you and understand what you have been doing, the company, how were you brought on board, was anything promised to you, have there been any discussions on compensation etc. How far are you with the VC process and getting funded will also play a key part.

I have worked with many start-up and had one of my own. I understand that the importance of having this figured out early.

Sincerely,
Ripal Patel, Esq.
San Jose Business Attorney

Your particular situation may be different. This answer is intended for information purposes only. No Attorney-Client relationship has been established.

Posted

Evaluation for a start up is really not really selling product. It’s far less on a precise science. From your AVVO statement it sounds as if you have a lack of communication with the managers and or founders of the company. You need to sit down and talk with them and come to some very exact and specific terms in regard to what your compensation is going to be and put this agreement in writing with specific dates, times and vesting periods.

If you have found this information helpful, please let the attorney know by marking best answer. Thank you. This participating Attorney does not warrant any information provided, nor are we creating an Attorney-Client relationship by providing said information to you on this site. Nothing contained herein is intended to constitute, offer, induce, promise, or contract of any kind. The content provided is presented as a courtesy to be used only for informational purposes and is not represented to be error free. The Law Offices of John N. Kitta makes no representations or warranties of any kind with respect to its answer to inquiries, and such representations and warranties are being expressly disclaimed. Given limited facts, we are attempting to share relevant information concerning this area of the law as a public service.

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