UC Law Business Journal
Abstract
Stock-based compensation remains prevalent in the United States private market, particularly among high-growth private companies, yet concerns persist regarding its potential drawbacks. This paper focuses on stock-based compensation in startup companies, delving into the legal frameworks behind the practice and identifying regulatory gaps. It examines well-known advantages of stock-based compensation, common misconceptions, and highlights its many disadvantages, primarily from the perspective of a startup employee. These drawbacks stem from the lack of private company disclosure obligations, illiquidity and lock-in concerns, and regulatory changes favoring the private market. This paper also explores a trend in the SEC’s tone toward increased regulation of private companies, evaluates strategies taken by a few private firms to mitigate associated risks, as well as potential solutions, including improved disclosure, repricing programs, secondary market sales, and strategic adjustment of RSU liquidity event conditions.
Recommended Citation
Alec Galustian,
Stock-Based Compensation in Startups: Employee Implications & Potential Solutions,
20 Hastings Bus. L.J. 239
(2024).
Available at: https://repository.uclawsf.edu/hastings_business_law_journal/vol20/iss2/4