[relkor]

This is exactly what I was looking for. As a first time founder at a small private business I was looking for a nicer way to compensate the employees other than sticking them with a huge tax bill as thanks for our success.

Has this approach held up in court or survived an audit? Do you actually transfer the money to the employee's account? How do how do you prevent them from having a program to immediately wire the money to Zurich and run off, given that you have a non-recourse note for the stock that never got purchased?

[edit] I say small business because we do not yet have the 10-15% weekly growth required to be called a startup. Until you are expanding like a airbag, you are just fooling yourself that you matter by calling your company a startup.

[AndrewKemendo]

>Has this approach held up in court or survived an audit?

Yes, it's actually a very old way to do things that fell out of favor in the 80s in favor of options. This way of doing it is more complex and more risk for the employer, so it makes no sense to do it over options if your goal is to just give tokens to employees.

>Do you actually transfer the money to the employee's account?

No, it's all papered

[mrkurt]

If it's a small private business, restricted share grants are pretty easy / cheap. Until you have a good basis for a fair market valuation (409a, raising an equity round, etc) employees can just pay the strike price for the shares, file an 83b election, and avoid most of the options calculus.