Deciding Whether to Share Equity

As we discuss in Chapter 5, one decision that all small-business owners must confront in the early days is whether to go it alone or take on partners. If you decide to have partners, you’ll probably share ownership with some or all of those partners. Even if you go solo, over time you may benefit from sharing equity with key employees or even all your employees.

Why would you want to consider sharing equity with your employees? The answer is simple: Doing so aligns their incentives with yours. After all, one of the reasons that you may have started a small business is to benefit from the economic rewards of your work. Sharing equity allows others to benefit along with you. If your employees simply draw a standard paycheck, they have less incentive to work toward boosting the short- and long-term profitability of your business.