Equity vesting with unpaid hours

[GoosFraba]

Hopefully this is the right forum for the question.

Last year and a bit I've started doing freelance on the side after my main job. For half of it I've been dealing with the same client who is a private ltd start-up.

Instead of continuing the paid freelancing with them, I have been offered 1% equity into the start-up for the role of an advisor. The vesting schedule is 48 months. The expectation is for me to provide 5 hours of my time each week for the advisory role (software dev). The 5 hours commitment is unpaid. The contract states I will be treated as an independent contractor rather than an employee. From what I understand I'll be getting options to buy stock rather than stock units (the agreement states "you will be granted an option to purchase X shares of the Company’s common stock (the “Option”). The exercise price per share of the Option will be determined by the Board when the Option is granted.")

Now this is all new to me (shares/stocks/equity always confused me), so I was hoping to get some insight from the community.

First question - is this a normal kind of arrangement? Especially given the fact the 5 hours commitment on my part is not paid in cash, but from my understanding the equity is my compensation?

Should I ask to be paid for the 5 hours, or is the whole idea of equity vesting to provide services based on future compensation when selling the shares if that becomes a possibility?

Are there any financial risks? I've got a full time job and mainly doing freelancing on the side, so I'm not relying solely on the equity investment. But I was wondering if there were any potential financial aspects to be aware of, especially when it comes to tax. For example could there be a situation where I have to substantial money (either tax or other obligations).

I've also noticed the company status on company house recently says "dissolved", but I don't know what that means in terms of equity investment.

Sorry some questions might be silly, but this is quite new to me.

Thanks

 

[Chris Ashdown]

Don't touch it with a bargepole, work for the money not vague promises in equity for a company which is probably worthless. Sounds to me the company is already short of money

 

[WaveJumper]

As above and personally if dissolved I would want payment up front

 

[Mark T Jones]

TLR

Still though, sweat equity for 1%- they're having a laugh.

If you genuinely want an equity based deal, get paid at a minimal rate and trade the rest for equity

 

[Newchodge]

Hopefully this is the right forum for the question.

Last year and a bit I've started doing freelance on the side after my main job. For half of it I've been dealing with the same client who is a private ltd start-up.

Instead of continuing the paid freelancing with them, I have been offered 1% equity into the start-up for the role of an advisor. The vesting schedule is 48 months. The expectation is for me to provide 5 hours of my time each week for the advisory role (software dev). The 5 hours commitment is unpaid. The contract states I will be treated as an independent contractor rather than an employee. From what I understand I'll be getting options to buy stock rather than stock units (the agreement states "you will be granted an option to purchase X shares of the Company’s common stock (the “Option”). The exercise price per share of the Option will be determined by the Board when the Option is granted.")

Now this is all new to me (shares/stocks/equity always confused me), so I was hoping to get some insight from the community.

First question - is this a normal kind of arrangement? Especially given the fact the 5 hours commitment on my part is not paid in cash, but from my understanding the equity is my compensation?

Should I ask to be paid for the 5 hours, or is the whole idea of equity vesting to provide services based on future compensation when selling the shares if that becomes a possibility?

Are there any financial risks? I've got a full time job and mainly doing freelancing on the side, so I'm not relying solely on the equity investment. But I was wondering if there were any potential financial aspects to be aware of, especially when it comes to tax. For example could there be a situation where I have to substantial money (either tax or other obligations).

I've also noticed the company status on company house recently says "dissolved", but I don't know what that means in terms of equity investment.

Sorry some questions might be silly, but this is quite new to me.

Thanks

Run away now. Run away very fast.

From what I understand I'll be getting options to buy stock rather than stock units (the agreement states "you will be granted an option to purchase X shares of the Company’s common stock (the “Option”). The exercise price per share of the Option will be determined by the Board when the Option is granted.")

Let's say ypou provide 500 hours of unpaid work which means their company is worth £500,000 more than it was when you started. This clause means they could allow you to buy 1 share @ £100,000,000. Does that sound like a good deal?

 

[eteb3]

If they were proposing to employ you and pay you in shares, they would have a legal obligation to pay for independent financial advice for you.

I’d take that as a health warning, and corroboration for the “don’t touch it with a barge pole” advice you’ve had above

 

[fisicx]

1% of nothing is nothing. If the business fails you get nothing.

Continue with the current arrangements where you get paid for your consulting work.

 

[Paul Kelly ICHYB]

Walk, no, run away from this offer!

If they were to give you shares, my view might change, but they are giving you the option to buy shares!!!!!!!!

 

[japancool]

So, you provide them with about 1000 hours of unpaid work, then you get the chance to give them some of your own hard-earned money for a piddling 1%, which entitles you to diddly-squat.

Sounds like an amazing deal.

 

[DontAsk]

Share options should be in addition to what they pay you now, as an incentive.