Business Equity Contract Structure - Clarification needed

[LucyLu33]

What is the difference between a contract that states the cofounder gets 12.5% equity total fully vested over 5 years (2.5%/year), and a contract that states that the cofounder starts at 0% equity and gets 2.5% equity per year for 5 years for a total of 12.5% equity? How do these contracts differ in terms of payout during the first 5 years?

 

[Zigner]

1: US law only.
2: Contract review is beyond the scope of this forum. You are well advised to have your contract (in its entirety) reviewed by local legal counsel.

What is the difference between a contract that states the cofounder retains 12.5% equity total fully vested over 5 years (2.5%/year) and a contract that states that the cofounder starts at 0% equity and has the potential to earn 2.5% equity per year for 5 years for a total of 12.5% equity? How do these contracts differ in terms of payout during the first 5 years?

 

[LucyLu33]

Hi Zigner,
I'm not asking for a contract review, I'm asking for help to understand if there is a difference between two equity structures that are presented. Can you help with that? And yes, pertaining to U.S. Law.

 

[PayrollHRGuy]

Are you asking for homework help?

 

[LucyLu33]

Are you asking for homework help?

Yep.

 

[PayrollHRGuy]

We generally don't do that here. I do give you brownie points for being honest.

 

[LucyLu33]

I'm doing homework on my brother-in-law who is trying to tell me these are the same, and I think not. Can you help a scientist (non-lawyer) out?

 

[Zigner]

You have posted a very small snippet of what is a much larger "thing". We can't advise in a vacuum, and posting the entire contract for review won't help because contract review is beyond the scope of this forum.

Advise your brother to speak to an attorney.

 

[PayrollHRGuy]

You are either asking us to do somebodies homework or to review a contract.

 

[LucyLu33]

Oh my gosh! Not the case! There is no contract. I am truly just trying to understand the difference, because I was debating with him on the issue, and I thought maybe someone could enlighten me! Guess this isn't a very "friendly" atmosphere!

 

[LdiJ]

What is the difference between a contract that states the cofounder retains 12.5% equity total fully vested over 5 years (2.5%/year) and a contract that states that the cofounder starts at 0% equity and has the potential to earn 2.5% equity per year for 5 years for a total of 12.5% equity? How do these contracts differ in terms of payout during the first 5 years?

If you read what I bolded you will see that they are not the same thing, although they have the potential to have the same result after 5 years.

 

[Zigner]

Oh my gosh! Not the case! There is no contract. I am truly just trying to understand the difference, because I was debating with him on the issue, and I thought maybe someone could enlighten me! Guess this isn't a very "friendly" atmosphere!

AGAIN, you are asking us a question in a vacuum.

 

[LucyLu33]

If you read what I bolded you will see that they are not the same thing, although they have the potential to have the same result after 5 years.

Ok, change "potential to earn" to "will earn"... then what are the differences.

 

[LucyLu33]

AGAIN, you are asking us a question in a vacuum.

Tony

I get what you are saying Tony. I understand that maybe I am not adding crucial details. I don't know enough to put it in the context you are looking for. Since it's a hypothetical situation, can you add a scenario to put it in context and then comment?

 

[LdiJ]

Ok, change "potential to earn" to "will earn"... then what are the differences.

What does "retain" mean?
What does "will earn" mean?

Retain means keep from the beginning.
Will earn means earn as you go.

As I said, the end result would be the same after 5 years. Other than that, you ARE asking questions in a vacuum and the devil is in the details.