as Ira already pointed out - there have been a few cases where people mad money from equity (i.e. options) but they got a competitive salary first.
I reiterate Lieberman rule #1 "Never work for equity unless its for yourself" i.e. dont work for anyone (an employer or a client) unless they can pay a fair return on your work.
If they dont or cant then sue Lieberman rule #2 "No money? Call me when you have a nickel in your pocket" (an old Sicilian saying)
dL :-)
Jonathan Ben Avraham wrote:
Hi Danny my brother,
At last I have found a soulmate with even more extreme views than mine.
There actually *have* been a few instances of employees making money from equity deals in Israel. Not *every* employer is out to screw his employees. It is just that as an employee you need to understand that the chance of making money from stock options in a start-up is only a little better that the chances of winning at Mifal HaPayis. Don't be blinded by the excitement and the hype, don't count on income from the options, but don't refuse them if the conditions of employment are otherwise satisfactory.
- yba
On Sun, 17 Apr 2005, Danny Lieberman wrote:
Jonathan
Absolutely. The only business advice you need is this one simple rule: "Never work for equity unless its for yourself"
Geoff's detailed explanations are superfluous and purely theoretical. Your employer (especially Israeli) will screw you 100% of the time.
dL
Jonathan Ben Avraham wrote:
Hi Danny,
I think that Geoffrey has done an important public service. There are a lot of brilliant and energetic folks with very little business sense who need to hear this advice.
- yba
On Sat, 16 Apr 2005, Danny Lieberman wrote:
Geoff
If I may be blunt - none of your learned explanations count for anything.
You'd have to be dumb-ass stupid to work for equity in Israel or anywhere else.
Hiring employees or contractors for equity is a way of getting something for nothing, and that violates Robert Heinleins Law of TAANSTAFL
shavua tov dL Visit us at www.software.co.il
Geoffrey S. Mendelson wrote:
Someone recently posted a job offer for a programer where they would pay
a combination of salary and equity. Israeli law has many pitfalls against this and if you do you need to understand exactly what you are getting.
Make sure that you have your contract reviewed by a lawyer who understerands
these things, if not you may have some unpleasent surprises.
Most importantly if the person offering the job tells you the exact
value of your equity, as in you wil get 15kNIS a month salary and your equity will be worth 10k a month, so you are really getting 25k a month,
thank them for their time and RUN out the door. Not only is that illegal,
the chance of it happening is so small that it's not worth it (which is
why it's illegal).
You can be paid in equity in two ways. The first is directly in stock.
For example, you work a month and get a salary and a share of stock. The
adavantage is it's your stock, you can do anything you want (except sell it)
with it. The laws for private sale of stock are quite strict. For example, if the
company EVER wants to go public in the US (who doesn't), you can only sell
your stock to a "sophistcated investor", such as one who made $200k per year
for the last two years or has a net worth of over $1m.
By Israeli law you will be required to pay income tax on the value of
the stock when you get it and a capital gains tax of 25% on the profit
you make if you sell it. Note there is no capital loss refund.
The second way is to be given a warrant (aka option) for the stock. This means that when the warrant matures, you may buy stock at the price of the
warrant. When you sell it, you pay 25% capital gains tax on any profit.
The big disadvantage, is that Israeli law does not allow you to own warrants
if you are not an employee. If you are a (sub)contractor, you may not be
given them. If you leave the company for any reason, your warrants come due.
This means that you must buy the stock at "the market price" within 30 days
of your leaving the company. You may be able to arrange a payment plan.
Imagine leaving a company after 7 months and be told that you deserve your
stock, you'll get one years worth and when you go to get it, find that you have to pay $4500 plus laywers fees to actually get it. Good if you
are going to a higher paying job and have the savings, bad if you are being
laid off in the middle of a recession and expected to buy an apartment in
three years with the profits on selling the stock. All of this depends upon wether or not your company succeeds and when it is
sold you own enough stock to make any money. The guy that worked at Mirabilus
for six weeks and got six shares out of 234 did really well (he got $1m a share
and at the time there was no capital gains tax), but there are probably a million people out there that got warrants for $10 a share and found when
they went to exercise them the stock was selling for $1.
You also have to be careful that you trust the people involved. Several Jerusalem companies were sold in such a way that the founders made millions
and the employees were left with worthless warrants. (and no jobs).
So in conclusion make sure that you understand exactly what you are getting.
If you do take the job, I wish you and your company good luck and may you
do well and prosper.
Geoff.
-- Danny Lieberman Visit us at http://www.software.co.il Office + 972 8 970-1485 Cell + 972 54 447-1114
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