I am being offered a consulting arrangement and my compensation is going to be stock which I’m excited about. What do you think?
Thanks, Dr. K
Stock is a the hot compensation right now, whether a direct grant allowing you to purchase now or after a period of time through vesting. Stock sounds exciting and may feel exciting. You are being offered (sold) on a concept bigger than yourself - being part of a company. As a form of compensation it also works as a tool for alignment (and cash savings for the grantor). However stock is always risky, whether you’re dealing with a public company or private, there are (typically) absolutely no guarantees on return, value, right to exit, etc.
I find phrases exist for a reason because there’s truth to them. "Cash is king" is a saying I find myself commonly thinking about when reviewing stock opportunities. Depending on your risk aperture and the amount of work you plan on putting in, you may want at least a component of your time to be compensated in cash, which is the real deal; the sure thing; the way to account for fair market value of services rendered without risk of loss of value or no appreciation or lock up periods or inability to liquidate when desired. Stock is always a risk - it may be worth nothing, or in the end you may receive a true multiple, but you will have absolutely no control over when you may exit at what price. If you are relying on income from the opportunity stock is typically not the best way to go about securing revenue.
Prior to accepting an issuance as compensation, it is imperative the arrangement be reviewed by counsel, so that we may assist in your evaluation of the opportunity and, perhaps, to assist in protecting any investment you may be making, or at a minimum, assisting with an "informed consent". In addition to your legal counsel being involved, it is also very important your accountant be kept in the loop with any equity issuances - advised PRIOR TO any issuance. Your accountant may be able to assist with any filing requirements preserving your tax positions with regards to a new issuance and failure to meet certain filing deadlines may result in wavier and loss of right to qualify...
In addition to our the general guidance set forth above, congratulations on your offer and opportunity! Each opportunity is unique so let’s take a closer look and use our best efforts to determine if you’re being provided fair compensation through stock.