For Subscribers

Invested Interest

Paying for a consultant's services with equity in your company

By Paul DeCeglie

Opinions expressed by Entrepreneur contributors are their own.

Need high-powered consultation but can't afford it? Why notpay for it in equity? That's right-offer ownership in yourbusiness to those consultants who can help get your start-up offthe ground, take it to the next level or otherwise add value."Companies provide stock to nonemployees for many of the samereasons that they provide stock to employees," notes EricHornsten, audit manager with PricewaterhouseCoopers in San Jose,California. The practice not only conserves cash--inasmuch asconsultants and other third parties can be compensated usingequity--but it may also align the goals of a consultant with thoseof your company and often results in a mutual respect and trustbetween you and your consultants. "It motivates consultants toachieve optimum performance," Hornsten adds.

In most cases where equity is issued to consultants, they alsoreceive cash compensation. How much of each? Consider the size andlength of the relationship, the opportunity for the consultant toadd value, and each party's comfort level with risk and reward.After the consultant and client agree on the duration and dollarvalue of their relationship, the dollar value is converted intoequity. With publicly traded companies, using stock isstraightforward: Simply pay out the required number of shares atthe current price. Private companies would use the stock valueimplied by their most recent round of financing or otherappropriate valuation assessment. Before taking any action, consultyour attorney and accountant.

Continue reading this article — and all of our other premium content with Entrepreneur+

For just $5, you can get unlimited access to all Entrepreneur’s premium content. You’ll find:

  • Digestible insight on how to be a better entrepreneur and leader
  • Lessons for starting and growing a business from our expert network of CEOs and founders
  • Meaningful content to help you make sharper decisions
  • Business and life hacks to help you stay ahead of the curve

Related Topics

Editor's Pick

Everyone Wants to Get Close to Their Favorite Artist. Here's the Technology Making It a Reality — But Better.
The Highest-Paid, Highest-Profile People in Every Field Know This Communication Strategy
After Early Rejection From Publishers, This Author Self-Published Her Book and Sold More Than 500,000 Copies. Here's How She Did It.
Having Trouble Speaking Up in Meetings? Try This Strategy.
He Names Brands for Amazon, Meta and Forever 21, and Says This Is the Big Blank Space in the Naming Game
Life Hacks

Use These Words and Gestures to Impress Your Boss

While you don't want to be suck-up, impressing your boss can open the door to endless professional opportunities.

Thought Leaders

Unlocking Financial Abundance: How Positive Psychology Can Make You a Multimillionaire

Individuals can become multimillionaires by cultivating positive emotions, mindset, gratitude, self-confidence, strong relationships, mindfulness and purpose. By applying these principles, individuals can increase their overall well-being and financial success in their personal and professional life.


What Gen Z Side Hustlers Don't Know About Taxes in 2023 — But Should

Karen Orosco, president of global consumer tax and service delivery at H&R Block, reveals why Gen Z taxpayers should file as soon as possible — and more.

Growing a Business

4 Ways to Provide Excellent Customer Service

Providing excellent customer service is critical for any business that wants to succeed. Here are a few tips on how to build your business with customer service at the center.

Business News

A Mississippi News Anchor Is Under Fire for Quoting Snoop Dogg

WLBT's Barbara Bassett used the rapper's "fo shizzle" phrase during a live broadcast, causing the station to let her go.