To a Key Employee—Part II of II In this second part, the author provides readers an illustration of the decision-making and allocation issues. These include issuing options, phantom stock, and converting the existing entity. Read Part I here.
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To a Key Employee—Part I of II The author encourages, as a starting point, owners of a closely held company to consider numerous issues with regard to the compensation of key employees. If the closely held company operations are successful, valuable and long-term employees sometimes seek to be compensated through an equity ownership in the company. This key employee desire for equity ownership has practical implications as well as taxation implications. From the practical perspective, the founding owners assumed the business risks and financial risks of starting the closely held company. Accordingly, the founding owners understandably feel that they are…