If you have been working for a company for a while and you’ve been doing a great job, you may be offered equity in the company. It’s a great reward, but be aware of its conditions.
Let’s first start with what equity is.
Equity can come in a few forms, but it’s basically a way to incentivise employees with partial ownership of the company. Depending on the type of company you work for, you may receive equity through becoming a partner, or you may receive shares that are publicly-traded, or options that will become shares at a later date, or you may be offered direct equity in the firm.
With equity, not only do you get a share of the distributed profits, you also get a share of the proceeds if the company is sold. This can be very lucrative and very appealing.
However, equity is designed to tie you to the company. You may be promised shares after a particular time or when you achieve a particular level within the company. If you receive shares that aren’t publicly-traded, you may not have the control or the ability to sell them. And if you leave the company, you may not be able to take the shares with you.
What’s more, depending on the type of equity that’s offered, your share of the rewards may also go alongside your share of the liability.
So if you are offered equity in a company, congratulations! But then have a think about what it actually means. Will it prevent you from seeking opportunities elsewhere? Are you able to realise the upside? And are you exposed to any downside?
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