So i'm the founder and developer of a startup, when i add a guy to the company to serve as a sales man, and give him 10% of equity of the company without any salary.
Does it mean he'll receive 10% of revenue only? OR
Does it mean he can only cash out by selling his shares? And will he benefit if i get funding from an investor?
I know it's probably a very silly noob question, but please help
@David. Its not a silly question and the answer is it depends on the agreement from the laywers.
Talk to a lawyer who works on setting up companies and dealing with these options.
Not a silly question at all.
Equity as compensation is a confusing and complex topic. If you are giving someone 10% of the equity (or ownership) of the company, then their value will generally increase or decrease proportionally with the value of the company.
If you get new investors, they may ask for equity that has preferred status to that of your regular shareholders. This may mean that the potential or real value of the equity given to your sales person changes in proportion to their original equity stake. I have created a list of the Top 11 things a startup should consider before rolling out equity to employees (http://www.slideshare.net/performensation/top-11-things-to-consider-for-stock-options-and-equity-comp). Feel free to post additional questions here and I will do my best to answer them.