October 25, 2022

Let’s Talk About Sweat Equity vs Cash 

Sweat Equity isn’t simple.

It makes a lot of sense for a lot of businesses, especially entrepreneurs and startups. But are you selling yourself short?

Sweat equity is a favorite form of payment for businesses, especially entrepreneurs and startups. And when you don’t have cash on hand, it’s a great way to get people involved, or in fact to be involved yourself from the beginning of a business. However, are you paying more than you’re intending to pay? Sweat equity basically says, Here’s a piece of my business in return for all the work that you’re going to do. Cash obviously is cash money in your hand.

Giving Away Your Business?

The problem with sweat equity is you’re giving away part of your business to that person, and that can be great, but it also creates a legal relationship between you and that person. Under the law, you have responsibilities to them in terms of what information you give them, how you work with them, and ultimately down the line what kind of say they have in what happens with your company.

It’s a Big Deal

It affects your valuation. It it affects how you do business. It’s a big deal. So the next time you’re gonna give away sweat equity, make sure you put it in writing, talk about the terms of the equity, talk about the valuation of your business, and talk about what your expectations are in return for that equity, not just yours but theirs. If you’re thinking about using sweat equity, give me a call today and let’s talk about what kind of liability you’re opening yourself up to.

THIS VIDEO IS MEANT TO ASSIST IN A GENERAL UNDERSTANDING OF THE CURRENT LAW AND PRACTICE RELATING TO THE TOPICS DISCUSSED. IT IS NOT TO BE REGARDED AS LEGAL ADVICE. COMPANIES OR INDIVIDUALS WITH PARTICULAR QUESTIONS SHOULD SEEK THE ADVICE OF COUNSEL.

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