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Equity Compensation Archives

Stock Options versus Stock Warrants – What’s the Difference?

November 2, 2012 by Casey W. Riggs

I frequently hear clients and some of their advisers talk about “stock options” and “stock warrants” and there is often considerable confusion between the two. In this post, I’ll briefly describe the major distinctions between these instruments and how each can be used in a privately held company. [Read more…]

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Filed Under: General Business Law Tagged With: Equity Compensation, Founder, Incentive Stock Options, Key Employee, Nonqualified Stock Options, Phantom Stock Plan, Restricted Stock, Stock Options, Warrants

Retaining Key Employees in a Privately-Held Company through Equity Compensation – Part 6: Securities Law and Corporate Governance Implications

August 19, 2012 by Alexander J. Davie

This post is the sixth in a series exploring techniques to attract and retain key employee, directors, and other service providers of privately held companies through equity-based compensation arrangements and alternative arrangements that provide cash payments tied to the value of the company’s stock or ownership interests.

In previous posts, Casey Riggs discussed various arrangements available to companies that wish to compensate employees and their service providers with equity, including stock options, restricted stock awards, phantom stock plans, stock appreciation rights, and profits interests in LLCs. When issuing equity compensation, companies should be mindful of the securities law and corporate governance implications of such awards. This post will explore those implications.

[Read more…]

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Filed Under: Startups and Venture Capital Tagged With: Equity Compensation, Incentive Stock Options, Key Employee, Nonqualified Stock Options, Phantom Stock Plan, Restricted Stock, Rule 701, SEC, Securities, Stock Appreciation Rights, Stock Options

Retaining Key Employees in a Privately-Held Company through Equity Compensation – Part 5: Accounting Implications

July 28, 2012 by Casey W. Riggs

This post is the fifth in a series exploring techniques to attract and retain key employees, directors, and other service providers of privately held companies through equity-based compensation arrangements and alternative arrangements that provide cash payments tied to the value of the company’s stock or ownership interests.

Previously, I provided an overview and discussed the tax treatment of various equity compensation arrangements typically used by corporations, such as stock options, restricted stock, phantom stock, and stock appreciation rights and the tax treatment of profits interests in entities taxed as partnerships (like LLCs). In this post, we’ll briefly discuss the accounting treatment for some of these vehicles (and in particular, the effects on the company’s P&L). While the details of accounting for stock-based compensation and deferred compensation plans are complex and certainly beyond the scope of this blog post, the basic concepts are important and should be considered before such awards are made. In particular, companies considering awards will want to have an understanding of the potential expenses that will be recognized on the company’s P&L in connection with an award and how those expenses might affect financial statements and agreements with third parties (e.g. financial covenants in a loan agreement).

[Read more…]

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Filed Under: Startups and Venture Capital Tagged With: Equity Compensation, Founder, Incentive Stock Options, Key Employee, Nonqualified Stock Options, Phantom Stock Plan, Restricted Stock, Stock Appreciation Rights, Stock Options

Retaining Key Employees in a Privately-Held Company through Equity Compensation – Part 4: “Profits Interests” in LLCs and Partnerships

July 6, 2012 by Casey W. Riggs

This post is the fourth in a series exploring techniques to attract and retain key employees, directors, and other service providers of privately held companies through equity-based compensation arrangements and alternative arrangements that provide cash payments tied to the value of the company’s stock or ownership interests.

Previously, I provided an overview and discussed the tax treatment of various equity compensation arrangements typically used by corporations, such as stock options, restricted stock, phantom stock, and stock appreciation rights. In this post, I’ll discuss a popular technique, called a “profits interest,” which is available to entities taxed as partnerships, such as limited liability companies (or “LLCs”). Profits interests can provide a tax efficient way to reward key service providers. Since LLCs are the most popular type of entity taxed as a partnership, for the rest of this post, I will assume that the entity in question is an LLC.

[Read more…]

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Filed Under: Startups and Venture Capital Tagged With: 83(b) Election, Equity Compensation, Founder, Key Employee, Limited Liability Company, Partnership, Profits Interest

Retaining Key Employees in a Privately-Held Company through Equity Compensation – Part 3: Tax Treatment of Various Plans

June 17, 2012 by Casey W. Riggs

This post is the third in a series exploring ways to attract and retain key employees, directors, and other service providers of privately held companies (herein “service providers”) through equity-based compensation arrangements and alternative arrangements that provide cash payments tied to the value of the company’s stock.

Previously, in the first and second posts of this series, I provided a general overview of four alternatives available to private companies to provide equity-based compensation to key employees and other service providers and some of the factors used to select among these alternatives. In this post, I’ll describe the federal income tax treatment of stock options, restricted stock, phantom stock, and stock appreciation rights, both from the employer and employee perspective. [Read more…]

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Filed Under: Startups and Venture Capital Tagged With: Equity Compensation, Founder, Incentive Stock Options, Key Employee, Nonqualified Stock Options, Phantom Stock Plan, Restricted Stock, Stock Appreciation Rights, Stock Options

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Strictly Business is a business law blog for entrepreneurs, startups, venture capital, and the private fund industry. Its editor is Alexander J. Davie, an attorney at Riggs Davie PLC based in Nashville, Tennessee. His practice focuses on corporate, securities, and business law. He works mainly with technology companies, including startups and emerging companies, and private equity, venture capital, and hedge funds.
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