What Should I Consider Before Offering an Equity Grant?
At some point in the life of almost every growing company, a founder faces a version of the same conversation. There is someone — a key hire, an early advisor, a person whose involvement feels essential — and the offer on the table includes equity. It feels like the right move. It probably is. What doesn't always get the same attention as the decision itself is the structure behind it, and that structure is where the real work happens.
Equity is not just compensation. It is ownership. And ownership, once granted, changes the legal and relational fabric of your company in ways that are not always easy to unwind. That is not an argument against offering it. It is an argument for offering it thoughtfully.
Know What You Are Actually Granting
Equity grants take different forms depending on your entity structure. A company organized as an LLC grants membership interests or profits interests. A corporation grants stock options, restricted stock, or restricted stock units. Each carries different tax consequences, different vesting mechanics, and different implications for the recipient and the company. Choosing the wrong instrument — or using a template designed for a different entity type — is a mistake that tends to surface at the worst possible moment, usually when someone is leaving or when a new investor is doing diligence.
Get the Vesting Right
A standard vesting schedule — four years with a one-year cliff — is common for a reason. It aligns incentives and protects the company if the relationship doesn't work out. But standard is not always right. An advisor providing introductions over eighteen months needs a different structure than a full-time executive building the product. Thinking through what the grant is meant to reward, and over what period, leads to a more durable agreement than defaulting to whatever template is most familiar.
Plan for Departures Before They Happen
A well-drafted equity agreement addresses both voluntary and involuntary departures — what vests, what doesn't, and whether the company has the right to repurchase unvested or vested shares. These provisions matter enormously and are frequently underspecified. The conversation about what happens at the end is best had at the beginning, when everyone is aligned and the relationship is strong.
Understand What You Are Giving Away
Every equity grant reduces your ownership percentage. Over time, across multiple grants, that dilution adds up. Understanding your cap table — who owns what, and what future grants or investment rounds will do to everyone's position — is essential context for any individual grant decision. Generosity is a value. So is knowing the full picture before you extend it.
Don't Get Caught Off Guard by Taxes
Certain equity grants trigger tax obligations at the time of grant, not at the time of sale. A profits interest in an LLC is generally tax-free at grant if structured correctly — but "structured correctly" carries real meaning. The recipient's tax treatment and the company's obligations depend on getting the documentation right, and the IRS is not forgiving of sloppy paperwork in this area.
The Structure Is Part of the Offer
Equity is one of the most powerful tools a founder has for attracting and retaining the people who help build something lasting. The founders who use it well are the ones who treat the structure with the same care they bring to the relationship itself. When the moment comes to make that offer, being prepared means more than knowing the number. It means knowing exactly what you are putting on the table and why.
Morgan Business Counsel is a New York boutique firm providing strategic legal counsel to founders, executives, and entrepreneurs across entity formation, investment structures, and outside general counsel services. To start a conversation, reach out at info@morganbusinesscounsel.com.
