Erin Shinneman, Paysa Legal & Equity Expert
TL,DR PRO TIP: Get everything in writing. Take pictures of each page of your contracts (especially the signature pages), scan it at your local Kinko’s, or use an app to convert the pictures to PDFs for your records.
Remember to keep a copy! Your startup equity could be your lottery ticket to wealth.
A friend came to me recently, distressed over an equity matter. My friend, let’s call him S, had been fired from his job and was trying to sort out his equity within the allotted three months. The problem was he believed he had the right to more equity than the company had in its records.
One year into working with the company, S was asked to take a pay cut in exchange for additional options with favorable vesting terms. This is not an uncommon scenario with early stage start-ups that sometimes find it hard to keep pace with early growth spurts. S agreed to the offer and says that an option grant was presented to him at work shortly thereafter, which he signed and gave back.
However, S didn’t make or receive a copy of this option agreement.
A year later, S was laid off along with several other employees and now he wants to exercise his vested options from both grants. The problem is that the company claims there never was a second grant. It says there is no record of the offer, of the approval of the grant by the board or of any actual grant. S has a few vague emails alluding to a pay cut and equity arrangement but nothing in writing that details the grant he received. Without any written agreement or proof that the company issued the grant, S has nothing to support his position. He could sue the company and present all of the circumstantial evidence but his chances of success are very low and the cost of doing so is prohibitive.
The lesson here is one you’ve heard a thousand times, I’m sure. However, S’s situation is not unique and it’s worth reiterating — always keep copies of all contracts that you sign and make sure that the other party has signed the agreement too! This is a lesson that S had to learn the hard way. At the end of the day, he had to walk away from his former employer with less money and less equity than he negotiated for.
Author: Nikhil Raj
Co-founder & Chief Product Officer at Paysa