We are a startup but not incorporated yet. We have someone who is interested in working part-time for equity. Is it ok to give him offer letter and offer some stocks which vests over 4 years?
Does anyone see any problems with this?
My first question is "Offer for employment to work where?" In other words, without the underlying company the job offer itself is kind of suspect isn't it?
You should really think of the offer letter as a contract and without the company being established who is the offer letter even from? Normally it would be signed by an officer of the company (with their title) and therefore specifically on the behalf of the company, not someone personally.
Relative to the shares themselves, if there is no corporate entity, then how do we know how many shares is the right number? What is their presumed value, etc, etc. If this is not known, then making the offer makes no sense. If this is all figured out, then just go form the company first and do this right.....it shouldn't take more than a few days to make it all legal and legit.
I think it's possible. As long as you agree upon a total percentage of the soon-to-be-incorporated company, you don't need to specify the n. of shares. In any case, definitely talk to a lawyer before drafting the letter since there might be tax consequences, employment law problems and/or actions to be taken right after incorporation.
It's not ok (and I'm the author of Foundrs.com, whose goal is to let you give equity to people before you are incorporated, so I have some background to answer the question).
You can write a letter and promise 10% of your future company. What that letter will achieve is make you liable for all kinds of trouble in the future, if your company ever takes off. For the time being, it may make the developer feel somewhat safer. So it's not a wise trade-off. Don't do it.
The real question is, why are you not incorporated? You could be very quickly if you wanted to, at least in the US. Any decent developer I know would not be shocked if I tell them that we expect to be incorporated within 2 weeks and the paperwork will be done by then. Especially since I always advise for a trial period anyway.