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Insights
Employment Agreements vs. Independent Contractor Agreements: What Founders Should Know
Startups often rely on both employees and independent contractors. But these are legally distinct relationships - and using the wrong type of agreement can create serious legal and financial risks. Misclassification can lead to tax penalties, lawsuits, and regulatory violations, especially in strict states like California and New York.
Offer Letters for Startups: What Founders Need to Know
Hiring your first employees is an exciting milestone. But it’s not enough to agree on salary with a handshake. A clear, well-drafted offer letter sets expectations, outlines key terms, and helps reduce the risk of misunderstandings later.
Fired or Quit? Why It Matters Legally for Your Startup
When someone leaves your company, founders often want to just “move on” - but whether the departure was voluntary or involuntary has lasting legal and financial consequences. From unemployment claims to final pay rules, the details matter.
FAQs
Open allWhy is vesting important for founders?
Vesting ensures equity is earned over time, protecting the company if a founder leaves early and keeping incentives aligned with long-term success.
Should founder equity always be split equally?
Not necessarily. Equal splits can help maintain alignment, but contribution-based allocations may be appropriate if founders bring significantly different resources or commitments.
How large should the employee equity pool be?
Most early-stage startups reserve 10%–20% for employee incentives, with flexibility depending on hiring plans and growth stage.
Why shouldn’t equity be expressed as a percentage?
Percentages can shift as new shares are issued. Defining equity in terms of actual share counts provides more accuracy and avoids misunderstandings.
Do all employees in a startup receive equity?
Not always. Equity is more common in early-stage startups and higher-level roles, though many growing companies expand equity participation to create a stronger ownership culture.
How do employees know what their equity is worth?
Equity value depends on company valuation, which changes with funding rounds, revenue growth, and market conditions. Clear communication from leadership helps employees understand potential value.
Why do startups use vesting schedules?
Vesting ensures employees earn equity over time, rewarding commitment and protecting the company if someone leaves early.
What is the most common type of equity compensation for startups?
Stock options remain the most common, but RSAs and RSUs are increasingly popular depending on company stage and employee needs.
What are the risks of converting my business entity?
Risks include tax consequences, restructuring ownership rights, and compliance burdens. Without proper planning, these can create legal or financial complications.