Business Law

Ask a Business Lawyer. Get Business Law Questions Answered ASAP.

Ask a Lawyer,
Get an Answer ASAP!

Business Law

What are the downsides of taking equity? I've offered

Customer Question
What are the downsides of...
What are the downsides of taking equity?
I've offered company equity to a couple of developers and they said they don't usually take equity. I wasn't offering it in exchange for work, just as an additional incentive to finishing the project. In all three cases, the developer did not take equity, for whatever reason.
I never asked why, just accepted the answer along the lines of we don't take equity.
This makes me think there may be a reason why a contractor might now accept equity. Does equity come with liability of some sort or flavor?
If so, that might make sense but my gut tells me any contractor would be delighted to take equity to increase their upside potential.
Submitted: 1 year ago.Category: Business Law
Show More
Show Less
Ask Your Own Business Law Question
Answered in 9 minutes by:
5/22/2016
Business Lawyer: Irwin Law, Attorney replied 1 year ago
Irwin Law
Irwin Law, Attorney
Category: Business Law
Satisfied Customers: 7,429
Experience: 30+ yrs. representing small business, real estate, probate
Verified
Are you speaking about developers or contractors? I don't think a developer would ever have any qualms about taking an equity position as a Limited partner or low percentage member of an LLC. Most contractors that I know are not into investments of that type. They don't understand them and as such they are suspicious about what they might be getting themselves into. Back in the 70s and 80s, it was not uncommon for mortgage lenders to require" equity kickers "from commercial developers in addition to the interest on the loan. You never hear that anymore and probably never will again.
Ask Your Own Business Law Question
Customer reply replied 1 year ago

developers are contractors. The same thing on my end. A software developer on hire as a 1099 employee contractor.

Not understanding might be part of the case but for them to turn them down in general, in my opinion, something is wrong there. I may need to post this in the IT category.

Business Lawyer: PDtax, CPA, MBA replied 1 year ago
PDtax
PDtax, CPA, MBA
Category: Business Law
Satisfied Customers: 4,712
Experience: Tax professional and business consultant for 35 years.
Verified
Hi from just answer. I'mCustomer I can respond since the first expert opted out.
Ask Your Own Business Law Question
Business Lawyer: PDtax, CPA, MBA replied 1 year ago
There are real downsides to taking equity, and that includes offering equity to people who know the risk and those who don't.Receiving equity is taxable. Lawyers and CPAs take startup equity commonly. But it's taxable to them. Contractors want cash instead of equity, since they likely live from job to job.Equity holders are exposed to business risks, like unpaid taxes, without compensation. Unpaid debts might be pursued by lenders, tax agencies, etc.Selling a small interest is almost impossible. Limited market, and getting value might be hard too.
Ask Your Own Business Law Question
Business Lawyer: PDtax, CPA, MBA replied 1 year ago
Small equity positions don't get to exert management control. Imagine a prestigious lawyer who owns 10% of a business that changed from a convenience store to an adult gift shop. He might have no voice, get no income, and be exposed to risks.And, don't forget, lenders get paid off first if the business fails. Maybe this leaves nothing for his minority interest.Thanks for asking at just answer. Positive feedback is appreciated. I'mCustomer
Ask Your Own Business Law Question
Ask PDtax Your Own Question
PDtax
PDtax
PDtax, CPA, MBA
Category: Business Law
Satisfied Customers: 4,712
4,712 Satisfied Customers
Experience: Tax professional and business consultant for 35 years.

PDtax is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

Mr. Kaplun clearly had an exceptional understanding of the issue and was able to explain it concisely. I would recommend JustAnswer to anyone. Great service that lives up to its promises!

Gary B.Edmond, OK

My Expert was fast and seemed to have the answer to my taser question at the tips of her fingers. Communication was excellent. I left feeling confident in her answer.

EricRedwood City, CA

I am very pleased with JustAnswer as a place to go for divorce or criminal law knowledge and insight.

MichaelWichita, KS

PaulMJD helped me with questions I had regarding an urgent legal matter. His answers were excellent.

Three H.Houston, TX

Anne was extremely helpful. Her information put me in the right direction for action that kept me legal, possible saving me a ton of money in the future. Thank you again, Anne!!

ElaineAtlanta, GA

It worked great. I had the facts and I presented them to my ex-landlord and she folded and returned my deposit. The 50 bucks I spent with you solved my problem.

TonyApopka, FL

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

< Previous | Next >

Meet the Experts:

Infolawyer

Infolawyer

Attorney

1,793 satisfied customers

Experienced lawyer

Dimitry K., Esq.

Dimitry K., Esq.

Attorney

1,611 satisfied customers

Run my own successful business/contract law practice.

MShore Law

MShore Law

Attorney

1,233 satisfied customers

Drafted Negotiated and/or Reviewed Thousands of Commercial Agreements

RGMacEsq

RGMacEsq

Attorney

742 satisfied customers

Licensed Texas General Practice Attorney

Barrister

Barrister

Attorney

640 satisfied customers

17 years practicing attorney, JD, BA, MBA

Ely

Ely

Attorney

564 satisfied customers

Counselor at Law.

J.Hazelbaker

J.Hazelbaker

Attorney

393 satisfied customers

Experienced and trained in the area of business law.

< Previous | Next >

Related Business Law Questions
What's the "Best" way to set up my LLC business with this
What's the "Best" way to set up my LLC business with this scenario and pay myself along with one other employee/partner? -- Currently a sole proprietor with two businesses in very closely related fiel… read more
Richard - Bizlaw
Richard - Bizlaw
Juris Doctor
3,683 satisfied customers
I'd like to look into opening an business account for an LLC
Second opinion] I'd like to look into opening an business account for an LLC with a member that's currently incarcerated... and a personal account for the person that's incarcerated. My guess is a tru… read more
Richard - Bizlaw
Richard - Bizlaw
Juris Doctor
3,683 satisfied customers
This spring we set up a family business. We want to get LLC
This spring we set up a family business. We want to get LLC status but have many details to work through as far as owners, structure, etc. We need to collect sales tax for products and need a tax numb… read more
PaulmoJD
PaulmoJD
Attorney At Law
Doctoral Degree
106 satisfied customers
Business Law Question: We have an LLC set-up (Delaware) and
Business Law Question: We have an LLC set-up (Delaware) and are finally ready to pitch for investor funding... One of our main partners got into some financial troubles last year, and to put it bluntl… read more
LegalPro
LegalPro
Doctoral Degree
563 satisfied customers
My son invested money in a small business that he also works
Hi, my son invested money in a small business that he also works for and is leaving the company. The owner has agreed to repay the investment plus interest. We feel there needs to be a legal document … read more
PaulmoJD
PaulmoJD
Attorney At Law
Doctoral Degree
106 satisfied customers
I have an existing TX LLC, doing business in CA. This LLC
Hello. I have an existing TX LLC, doing business in CA. This LLC will generate income from all over the world. I am going to register the TX LLC as a foreign LLC doing business in CA. At the same time… read more
Roy Hadavi
Roy Hadavi
Attorney
Juris Doctorate
886 satisfied customers
Converting my llc business to a c corporation and looking
Converting my llc business to a c corporation and looking for a lawyer to sign the paperwork … read more
Richard - Bizlaw
Richard - Bizlaw
Juris Doctor
3,683 satisfied customers
I am looking to purchase startup that provides a specialized
I am looking to purchase startup that provides a specialized business service (of the data analysis type). They have an office, specialized scanning equipment. We have roughly agreed on their ballpark… read more
WiseOwl58
WiseOwl58
JD Honors Graduate
3,497 satisfied customers
Launching startup and need organized step in what to do.
Launching startup and need organized step in what to do. I've formed my LLC and am just about done with website. Not sure what should do next.… read more
Edward Young
Edward Young
Juris Doctor
48 satisfied customers
I have an investment contract with a local business. I was
I have an investment contract with a local business. I was suppose to get 30% of profits monthly. They have defaulted on the agreement. What can I do? … read more
Roy Hadavi
Roy Hadavi
Attorney
Juris Doctorate
886 satisfied customers
I have a 100% online startup business incorporated in
I have a 100% online startup business incorporated in delaware.The corporation name does not fit the marketing and product we r taking to market so we have a couple of choices 1. Apply for a DBA but i… read more
RGMacEsq
RGMacEsq
Attorney
Doctoral Degree
742 satisfied customers
A) I have a 100% online startup business(that has no
a) I have a 100% online startup business(that has no physical product) incorporated in Delaware. My startups first step is to accept financial pledges(credit card/debit card) to support our mission/ca… read more
lawyerJ
lawyerJ
Juris Doctorate
127 satisfied customers
1) Does a 100% online startup business that is incorporated
1) Does a 100% online startup business that is incorporated in Delaware need to foreign qualify in every state in the US ?2) As a startup the future is very uncertain so when is the time right you nee… read more
Roy Hadavi
Roy Hadavi
Attorney
Juris Doctorate
886 satisfied customers
I have a business partner for an LLC in Florida. He is
Hello, I have a business partner for an LLC in Florida. He is withdrawing and says I have to buy him out. Is that correct, do I have to buy him out? … read more
Roy Hadavi
Roy Hadavi
Attorney
Juris Doctorate
886 satisfied customers
I would like to invest in a private startup and because the
I would like to invest in a private startup and because the investment amount is small, the founder/CEO of the startup does not want to put my name directly on the company registration and cap table, … read more
Landon Lerner
Landon Lerner
Founder of San Diego Office
Doctoral Degree
12 satisfied customers
I would like to invest in a private startup and because the
I would like to invest in a private startup and because the investment amount is small, the founder/CEO of the startup does not want to put my name directly on the company registration and cap table, … read more
Richard - Bizlaw
Richard - Bizlaw
Juris Doctor
3,683 satisfied customers
I invested in an LLC on a property in TX and have been
I invested in an LLC on a property in TX and have been looking for the managers for a few years now. On my own I found that the property was red tagged, and sold for a loss in 2011. My investment was … read more
DrakeLAW
DrakeLAW
Juris Doctorate
831 satisfied customers
I have a question about investments for a startup, as well
I have a question about investments for a startup, as well as setting up an investment vehicle.… read more
Damien Bosco
Damien Bosco
2,991 satisfied customers

DISCLAIMER: Answers from Experts on JustAnswer are not substitutes for the advice of an attorney. JustAnswer is a public forum and questions and responses are not private or confidential or protected by the attorney-client privilege. The Expert above is not your attorney, and the response above is not legal advice. You should not read this response to propose specific action or address specific circumstances, but only to give you a sense of general principles of law that might affect the situation you describe. Application of these general principles to particular circumstances must be done by a lawyer who has spoken with you in confidence, learned all relevant information, and explored various options. Before acting on these general principles, you should hire a lawyer licensed to practice law in the jurisdiction to which your question pertains.

The responses above are from individual Experts, not JustAnswer. The site and services are provided “as is”. To view the verified credential of an Expert, click on the “Verified” symbol in the Expert’s profile. This site is not for emergency questions which should be directed immediately by telephone or in-person to qualified professionals. Please carefully read the Terms of Service (last updated February 8, 2012).

DISCLAIMER: Answers from Experts on JustAnswer are not substitutes for the advice of an attorney. JustAnswer is a public forum and questions and responses are not private or confidential or protected by the attorney-client privilege. The Expert above is not your attorney, and the response above is not legal advice. You should not read this response to propose specific action or address specific circumstances, but only to give you a sense of general principles of law that might affect the situation you describe. Application of these general principles to particular circumstances must be done by a lawyer who has spoken with you in confidence, learned all relevant information, and explored various options. Before acting on these general principles, you should hire a lawyer licensed to practice law in the jurisdiction to which your question pertains.

The responses above are from individual Experts, not JustAnswer. The site and services are provided “as is”. To view the verified credential of an Expert, click on the “Verified” symbol in the Expert’s profile. This site is not for emergency questions which should be directed immediately by telephone or in-person to qualified professionals. Please carefully read the Terms of Service (last updated February 8, 2012).

Show MoreShow Less

Ask Your Question

x