Equity · Equity contracts

How to structure an agreement for "sweat equity" in a UK startup?

Dennis Yurkevich Founder @ AirGrid

February 4th, 2019

I have someone joining, but not being paid a wage initially, he will be compensated purely in equity, I am interested to hear how people structure such an arrangement and how to decide on the equity %.

Thanks in advance!

Martin O'Donoghue, MBA Solicitor | Director | Founder | Tech & MedTech Law | M&A Law | Venture Capital | Private Equity |

February 5th, 2019

Dennis, there are two key ways to do it.


First, you can grant the shares up front and ensure that they have vesting provisions. This means that the value/ownership of the shares will vest over a period of time and/or upon hitting certain targets. If the requirements are not met, the company can buy the shares back for nominal value in the future (or when the employee leaves).


The other way of doing it is to grant options to acquire shares at a specific price in the future. The prices is fixed at the date of issue of the option.


Happy to discuss further.


best,

Martin

Kanwal Fatima Entreprenuer & Startup Consultant

February 5th, 2019

Equity distribution will be based on the net worth (valuation) of your startup or business. The equity is usually distributed among the founders, investors, advisor and employees. The share will be determined based on the contribution of capital and pre & post money valuation of the startup.


How much an equity chunk you should give to a person will mainly depend on his/her contribution or role in the business in case of sweat equity.

Dan Light Farther faster with Dan Light Consulting

February 9th, 2019

Read "Slicing The Pie". I don't remember the author but it deals with that ver problem quite well. I'm sure it works equally well in the UK.