Which of the following is true when compensating employees with company equity?

A) The equity to be issued will be considered salary and not subject to securities laws.
B) The equity will be considered a gift since no cash was issued.
C) The shares may be considered a taxable item.
D) The shares cannot be tied to performance of services.

Question

Shahed Nashwan · Accepted Answer

Final Answer : C, Explanation :  When compensating employees with company equity, the shares may be considered a taxable item. The value of the equity provided is typically accounted for as taxable compensation to the employee. However, the specifics of the tax implications will depend on the type of equity compensation being offered (such as stock options, restricted stock units, etc.) and the relevant tax code in the applicable jurisdiction. Option A is incorrect because the issuance of equity generally does trigger securities laws, which may require registration or exemption from registration. Option B is incorrect because equity compensation is not considered a gift, but rather a form of compensation for services rendered. Option D is incorrect because equity compensation is often tied to the performance of services (such as vesting over time), which is a common way to incentivize and retain employees.

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