Start-up equity benefits - definition and advantages

Read our guide to giving equity to key employees and start-up equity benefits for you and your business.

Access to a business's start-up employee equity pool can be one of the main points of attraction of working in a start-up. Giving employees access to equity can help you attract the best of the best. This is why we've compiled this short guide to giving equity to key employees and start-up equity benefits for you and your business.

Equity options - explained

Equity options give your staff members the right to buy shares at a certain price point. They themselves are not shares of stock or stock options. Employees that get into a startup company early can then make enormous profits once that company becomes a big player and is sold or goes public.

Equity options
Equity options give your staff members the right to buy shares at a certain price point.

Advantages for employers

You might be wondering what the advantages of giving out company equity are for you as an employer. First and foremost, the opportunity to get startup equity will attract talent, even if you cannot pay potential future employees a significant salary. Having an equity option also tends to make your team members work harder because the prospect of big equity compensation is on the horizon.

You might be wondering what the advantages of giving out company equity are for you as an employer.

Creating a start-up employee equity pool

The first of the strategic business decisions concerning your equity options is the size of the employee option pool, i.e., the portion of your company’s equity to be given to employees. Common practice is for companies to reserve c. 10% of their total equity for this. However, this also depends on your strategic business direction. In the next step, you have to determine how much equity each employee is going to receive. It is common for companies to grant bigger equities to early-stage employees and more senior employees. A relatively standard share would be for the average equity for early and senior staff members to be between c. 0.8% and c. 2.5%. However, these are just common percentages - at the end of the day, it is up to you as the business owner.  

How to distribute equity in your team

There are two routes you can go down with giving out equity options: Only give it out to early employees and key employees or give equity options to every employee. Should you decide on the latter, hiring a new staff member will always be a significant investment for your company. This does mean your equity pool will need to be relatively big which means you inherently have less control.

Distributing equity in a team
There are two routes you can go down with giving out equity options: Only give it out to early employees and key employees or give equity options to every employee.

Get business advice here

Our blog holds tips, how to’s and general business advice.

Accountants

5 ways to sell your clients on advisory services

Accountancy firms need to act quickly to ensure that they offer their clients a range of advisory services, move with new trends, and increase revenue sources.

This is some text inside of a div block.

Heading

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat.

Accountants

5 ways to sell your clients on advisory services

Accountancy firms need to act quickly to ensure that they offer their clients a range of advisory services, move with new trends, and increase revenue sources.

Small Businesses

How to prepare your small business for MTD (Making Tax Digital)

Find out what MTD for ITSA means for you and how to MTD-proof your small business.

Futrli News

Futrli has been acquired by Sage!

Sage's acquisition of Futrli is part of its continued strategic approach to support accountants from proposal to advisory services.

Business

What is a Purchase Order (PO) Number? Everything you need to know

PO Numbers are a crucial detail required for Purchase Orders and Invoices, helping identify and manage your customers purchase journey.

Finance

Total Cost: Formula, Definition & Examples

Identifying your Total Cost can be crucial in understanding your business's profitability. Learn how to properly evaluate your Total Cost performance.

Business

Break-Even Point: Definition, Formula & Examples

Understanding the Break-Even Point Formula will help your business manage its costs and improve your financial future. Find out more!

Finance

Interim Invoice: Definition, Examples, and How to Use

An Interim Invoice is when you're requesting a partial payment, often for a partial delivery of a service or instalments on a large project. Click to learn more!

Business

What is a MIS Report? Meaning, Types & Examples

MIS Report stands for Management Information Systems, it's an encompassing term for a set of reports that allow the business functions to be analyzed.

Business

What Is Credit Control? Definition, Process & Procedures

Credit Control is the process of extending credit to make sales or services more attractive to a customer which in turn can increase sales numbers.

Finance

The Prudence Concept In Accounting | Definition & Guide

Prudence concept is a concept of accounting that increases the trustworthiness of figures reported in the financial statements of a business. Click to learn more!

Business

What Is A Close Company? Definition & Rules

A close company is a UK-based business where 5 or fewer individual participators have ownership or control over the business. Read on to learn more!

Forecasting

What is the Sortino Ratio & How to Calculate It

The Sortino Ratio is a way to measure the return on investment by just looking at downside risk to better measure risk-adjusted returns.