Equity As Part of Compensation
With LLCs, the operation agreement can define different shares for different kinds of income or equity, and different partners may be treated differently. In essence, you can end up with a different stock class for each partner/member. So you need to read the grant document and the OA really carefully to know what you're getting. You may want to have a lawyer read through it for you. This may be way more complicated than classes of shares in a corporation. At the most basic level, the employee is getting a share of ownership in the company and would get a percentage of the sales price. That said, as littleadv alluded to, different share classes have different priorities and get paid in different orders. In a bankruptcy, for example, some classes almost never get paid in practice because they are so far down the ladder of priority.  The first step you should take would be to try to clarify what you are getting with the company itself. Failing that, contact a financial professional or an attorney in your area who can read the terms and give you a better understanding of the contract before you sign.
From my understanding, only A and B are shareholders, and M is a managing entity that takes commission on the profit. Assuming that's true.  At the start of the project, A contributes $500,000. At this point, A is the sole shareholder, owning 100% of the project that's valued at $500,000.  The real question is, did the value of the project change when B contributed 3 month later. If the value didn't change, then A owns 33.33%, and B owns 66.66%. Assuming both A and B wants to pay themselves with the $800,000 profit, then A gets a third of that, and B gets the rest.  However, if at the time of B's contribution, both parties agreed that the pre-money of the project has changed to $1 million, then B owns half the project valued at 2 million post-money. Then the profit would be split half way. This is an old question that has an accepted answer, but it has gotten bumped due to an edit and the answers given are incorrect. I am assuming this means that every other Friday, the company is going into the open public market, buying those shares and then giving it out to the employees. No. Companies will internally hold shares that it intends to offer employees as additional compensation. There are no open market transactions, so the market price of the stock does not change (at least not due to buying pressure).  The only net effect is an equivalent expense for the compensation, but that should already be accounted for in the share price as normal operating expenses. These share may come through an initial buyback from the market, but more common is that when companies issue new shares they keep some internally for exactly this situation.  If they issued new shares every pay period, it would dilute the existing shares several times a quarter which would be difficult to account for. "Simply paying him back the 50K to reduce ""his equity"" back to 30% doesn't necessarily mean that he still doesn't have a higher liq pref upon a liquidation event. You don't need the legal language to know...I deal with term sheets all the time, I don't deal in the legal language, we cut the deal with the term sheet and leave the legal language to the lawyers." "From Wikipedia - Stock: The stock (also capital stock) of a corporation constitutes the equity   stake of its owners. It represents the residual assets of the company   that would be due to stockholders after discharge of all senior claims   such as secured and unsecured debt. Stockholders' equity cannot be   withdrawn from the company in a way that is intended to be detrimental   to the company's creditors Wikipedia - Dividend: A dividend is a payment made by a corporation to its shareholders,   usually as a distribution of profits. When a corporation earns a   profit or surplus, it can re-invest it in the business (called   retained earnings), and pay a fraction of this reinvestment as a   dividend to shareholders. Distribution to shareholders can be in cash   (usually a deposit into a bank account) or, if the corporation has a   dividend reinvestment plan, the amount can be paid by the issue of   further shares or share repurchase. Wikipedia - Bond: In finance, a bond is an instrument of indebtedness of the bond issuer   to the holders. It is a debt security, under which the issuer owes the   holders a debt and, depending on the terms of the bond, is obliged to   pay them interest (the coupon) and/or to repay the principal at a   later date, termed the maturity date. Interest is usually payable   at fixed intervals (semiannual, annual, sometimes monthly). Very often   the bond is negotiable, i.e. the ownership of the instrument can be   transferred in the secondary market. This means that once the transfer   agents at the bank medallion stamp the bond, it is highly liquid on   the second market. Thus, stock is about ownership in the company, dividends are the payments those owners receive, which may be additional shares or cash usually, and bonds are about lending money. Stocks are usually bought through brokers on various stock exchanges generally. An exception can be made under ""Employee Stock Purchase Plans"" and other special cases where an employee may be given stock or options that allow the purchase of shares in the company through various plans. This would apply for Canada and the US where I have experience just as a parting note. This is without getting into Convertible Bond that also exists: In finance, a convertible bond or convertible note or convertible debt   (or a convertible debenture if it has a maturity of greater than 10   years) is a type of bond that the holder can convert into a specified   number of shares of common stock in the issuing company or cash of   equal value. It is a hybrid security with debt- and equity-like   features.  It originated in the mid-19th century, and was used by   early speculators such as Jacob Little and Daniel Drew to counter   market cornering. Convertible bonds are most often issued by   companies with a low credit rating and high growth potential." All shares of the same class are considered equal. Each class of shares may have a different preference in order of repayment.  After all company liabilities have been paid off [including bank debt, wages owing, taxes outstanding, etc etc.], the remaining cash value in a company is distributed to the shareholders. In general, there are 2 types of shares: Preferred shares, and Common shares.  Preferred shares generally have 3 characteristics: (1) they get a stated dividend rate every year, sometimes regardless of company performance; (2) they get paid out first on liquidation; and (3) they can only receive their stated value on liquidation - that is, $1M of preferred shares will be redeemed for at most $1M on liquidation, assuming the corporation has at least that much cash left. Common Shares generally have 4 characteristics: (1) their dividends are not guaranteed (or may be based on a calculation relative to company performance), (2) they can vote for members of the Board of Directors who ultimately hire the CEO and make similar high level business decisions; (3) they get paid last on liquidation; and (4) they get all value remaining in the company once everyone else has been paid. So it is not the order of share subscription that matters, it is the class. Once you know how much each class gets, based on the terms listed in that share subscription, you simply divide the total class payout by number of shares, and pay that much for each share a person holds. For companies organized other-than as corporations, ie: partnerships, the calculation of who-gets-what will be both simpler and more complex. Simpler in that, generally speaking, a partnership interest cannot be of a different 'class', like shares can, meaning all partners are equal relative to the size of their partnership interest. More complex in that, if the initiation of the company was done in an informal way, it could easily become a legal fight as to who contributed what to the company. No. Share are equity in companies that usually have revenue streams and/or potential for creating them. That revenue can be used to pay out dividends to the shareholders or to grow the company and increase its value. Most companies get their revenue from their customers, and customers rarely give their money to a company without getting some good or service in exchange. The word equity always refers to the ownership of something, whether it be a company or a home. The wikipedia article is differentiating companies by how they raised money for operations. Equity companies, by their definition are those that sold an interest in the company in exchange for capital. Debt based companies, again by their definition, are those that borrow money from investors, but instead of an ownership stake they promise to pay back the money presumably with interest. "What is a 403b? A 403(b) plan is a tax-advantaged retirement savings plan available for public education organizations, some non-profit employers (only US Tax Code 501(c)(3) organizations), cooperative hospital service organizations and self-employed ministers in the United States. Kind of a rare thing. A bit more here: http://www.sec.gov/investor/pubs/teacheroptions.htm under investment options Equity Indexed Annuities are a special type of contract between you and an insurance company. During the accumulation period — when you make either a lump sum payment or a series of payments — the insurance company credits you with a return that is based on changes in an equity index, such as the S&P 500 Composite Stock Price Index. The insurance company typically guarantees a minimum return. Guaranteed minimum return rates vary. After the accumulation period, the insurance company will make periodic payments to you under the terms of your contract, unless you choose to receive your contract value in a lump sum. For more information, please see our ""Fast Answer"" on Equity Indexed Annuities, and read FINRA's investor alert entitled Equity-Indexed Annuitiies — A Complex Choice. So perhaps ""equity indexed annuities"" is the more correct thing to search for and not ""insurance funds""?" Assuming you are saying that the company issues 20,000 additional shares of its own stock and sells them for $8 each: The money from the sale is not income and not part of earnings.  It is capital and appears on the balance sheet as part of shareholder's equity. With no other transactions, yes, the total of shares outstanding is increased by 20,000 to 100,000. "Absolutely terrible idea(s) on many fronts. Firstly, why are you giving away equity at all? usually it's to attract people you otherwise wouldn't be able to hire (like extremely talented coders or business development managers) but normal employees? Bad idea. If you really want to give up equity, then make sure it's only realized (valued) once certain targets are met (i.e. sales/revenue/share price/investment etc). As for the nomenclature, they're not ""Co-Founders"" - that's typically reserved for the people that foundned the company, not just people who happened to be working for the company it started trading. Call them ""founding employee"" if you must, but they're certainly not founders. Why does this matter? If the company ever takes iff or you get investment, or you fire one of them or one just gets the idea to sue you, their position name suddenly REALLY matters, and by not being careful, they could win a substantial cut of your company in a lawsuit. there's even stories of employees ganging up on their bosses and they end up owning the company. I know someone that's been involved in high 8 figure suit for 7 years for exactly the same reason. So unless they're putting in startup capital or they're taking a serious hit on their salary in return for compensation in the form of equity, don't give anyone equity." Source, see if you have access to it Convertible notes are often used by angel investors who wish to fund businesses without establishing an explicit valuation of the company in which they are investing.    When an investor purchases equity in a startup, the purchase price of the equity implies a company valuation.  For example, if an investor purchases a 10 per cent ownership stake in a company, and pay $1m for that stake, this implies that the company is worth $10m. Some early stage investors may wish to avoid placing a value on the company in this way, because this in turn will affect the terms under which later-stage investors will invest in the company.  Convertible notes are structured as loans at the time the investment is made.  The outstanding balance of the loan is automatically converted to equity when a later equity investor appears, under terms that are governed by the terms set by the later-stage equity investor.  An equity investor is someone who purchases equity in a company. Example:- Suppose an angel investor invests $100,000 using a convertible note.  Later, an equity investor invests $1m and receives 10% of the company's shares.  In the simplest possible case, the initial angel investor's convertible note would convert to 1/10th of the equity investor's claim.  Depending on the exact structure of the convertible note, however, the angel investor may also receive extra shares to compensate them for the additional risk associated with being an earlier investor The worst-case scenario would be if the issuing company initially performed well, meaning that the debt would be converted into shares, and subsequently went bankrupt. The converted shares would become worthless, but the holder of the note would no longer have any recourse. Will twitter have to sell their offices and liquidate staff to close this debt? This depends on the seniority(priority) of the debt. Debt is serviced according to seniority. The higher seniority debts will be paid off first and then only the lower seniority debts be serviced. This will all be in the agreements when you enter into a transaction. When you say liquidate staff you mean sell off their assets and not sell their staff into slavery. Converting the comment from @MD-Tech into answer How or where could I find info about publicly traded companies about how stock owner friendly their compensation schemes are for their board and officers? This should be available in the annual report, probably in a directors' remunerations section for most companies "IANAL, but I had heard (and would appreciate someone more qualified commenting on this) that one reason these things were often found unenforceable is that there is no consideration.  The contract is to bind you for your work each day, but once you stop working, they allege you have a continued obligation that transcends your time at the company.  Claiming that your day-to-day compensation covers this is as if to say some part of that compensation is not for your work but to pay you for not going elsewhere.  It would be nice to see at minimum a requirement to separate these two concepts into separate contracts as bundling them creates a blur, and most importantly doesn't allow you to negotiate or walk away from the terms of one part without the other.  At the heart of any ""market"", which the job market purports to be, is a sense that a fair price is reached when both parties can walk away from a bad deal. This is not so in the case of employment because, as Adlai Stevenson said, ""a hungry man is not a free man"", so someone who needs to eat (or feed a family) has a need to take an offer that is already biasing their acceptance of work, and this quasi-duress is compounded when a company can attach additional pressures that work agains that person's ability to fairly negotiate possible improvements of what may already have been a bad situation.  I'm of the impression that duress itself has been argued to be a reason to hold a contract invalid.  But more abstractly and generally, any time two parties are bargaining asymmetrically (I'm not sure the legal definition, but intuitively I'd say where one party has the ability to force a contract change and the other party is not), then those terms have to be suspect.  Also, for the special case the pay is anything near minimum wage, I would suggest asking the question of whether the part of the compensation that is salary, not ""keeping you from working for the competition"", is the wage paid consistent with minimum wage, or does it have to draw from the pool of money that is not about wage but is about incentivizing you to not move.  And, finally, if they stop paying you, and each day you've been paid a little to work and a little to incentivize you to leave, then are you getting a continued revenue stream to continue to incentivize you not to work for the competition? If not, there would seem again not to be consideration.  As I said, I'm not an expert in this. I just follow such matters sometimes in the news. But I don't see these issues getting discussed here and I hope we'll see some useful responses from the crowd here, and also the smart folks at reddit can help through their discussions to form some useful political and legal defenses to help individuals overcome what is really a moral outrage on this matter.  Capitalism is an often cruel engine.  I worked at a company where one of the bosses said to me, after contributing really great things that added structurally in fundamental ways to the company, ""don't tell me what you've done, tell me what you've done lately"". Capitalism makes people scrap every day to prove their worth. So it's morally an outrage to see it also trying even as it beats down the price of someone and tells them they aren't entitled to better, to tell them that they may not go somewhere else that thinks they are better. That is not competition and it is not fair.    Indentured servitude, not slavery, is more technically correct. And yet it is a push to treat people like capital, so slavery is not inappropriate metaphorically.  The topic is non-competes, but really it's about businesses not wanting to have to compete for employees; that is, about businesses not wanting capitalism to prevail in hiring.  Sorry for the length." Various types of corporate actions will precipitate a price adjustment.  In the case of dividends, the cash that will be paid out as a dividend to share holders forms part of a company's equity.  Once the company pays a dividend, that cash is no longer part of the company's equity and the share price is adjusted accordingly. For example, if Apple is trading at $101 per share at the close of business on the day prior to going ex-dividend, and a dividend of $1 per share has been declared, then the closing price will be adjusted by $1 to give a closing quote of $100. Although the dividend is not paid out until the dividend pay date, the share price is adjusted at the close of business on the day prior to the ex-dividend date since any new purchases on or after the ex-dividend date are not entitled to receive the dividend distribution, so in effect new purchases are buying on the basis of a reduced equity.   It will be the exchange providing the quote that performs the price adjustment, not Google or Yahoo.  The exchange will perform the adjustment at the close prior to each ex-dividend date, so when you are looking at historical data you are looking at price data that includes each adjustment. Not if the bonuses are also on a grid. At my work it's the same way -- you get paid a certain amount for every year of tenure you have at the company (outside experience generally doesn't count) and then the bonus varies depending on how your performance rating goes. Everybody knows what the bonus levels are.