If I choose to work for salary + equity, and the company loses and/or is in debt, am I obligated to pay a part of the company debts?
Is it common in the startup world?
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Sign up to join this communityIf I choose to work for salary + equity, and the company loses and/or is in debt, am I obligated to pay a part of the company debts?
Is it common in the startup world?
Generally, no, equity-investors risk only the capital they contribute. If a company is liquidated or restructured, the debt-holders have first claim on assets. You, as an equity-holder, may only make claims on assets after the debt-holders are made whole.
However, what I say above is a simplification and not true of all corporate structures. Some common exceptions to be mindful of:
As an additional aside, you’ll likely not receive equity compensation - instead, you’ll receive options. In the most common form, these options enable you to buy equity from the firm at a pre-determined price at a time in the future, specifically after an IPO. Options lack the obligations and rights of equity, but have a similar financial behavior - and thus are a favored way of providing equity-like compensation to employees of new ventures.
It's possible to setup an entity such that employees with equity can wind up with financial obligations if the company goes bankrupt. But I've never heard of anyone setting up a company in this way and it would seem to be an incredibly foolish thing to do.