
Dan Brecher
Counsel
212-286-0747 dbrecher@sh-law.comFirm Insights
Author: Dan Brecher
Date: October 5, 2021
Counsel
212-286-0747 dbrecher@sh-law.comFor startup companies and other cash-strapped businesses, so-called “sweat equity” can be extremely beneficial. While many startups are unable to reward founders and employees for their hard work with monetary compensation, they can award an equity interest in the company.
The term “sweat equity” broadly refers to the value-enhancing improvements generated from the sweat of your brow. Sweat equity can take a variety of forms. In real estate, investors may perform some of the work themselves to lower the costs of the project and increase the return when the property is sold. In the corporate context, sweat equity is the contribution that a company’s stakeholders make in the form of labor and time rather than money. In exchange for the benefits the company receives, stakeholders are generally awarded shares in the company, which are referred to as “sweat equity shares.”
The value of sweat equity can also be calculated in a variety of ways. In a partnership, sweat equity is generally calculated based on each partner’s time and effort in building the business. Other examples include the compensation that an employee would make performing the same task somewhere else, the amount the company would have to pay to someone else to perform the same tasks, and the estimated increase in value that the individual’s work has generated. In many cases, businesses will rely on more than one factor.
Whatever the form sweat equity takes, it is important to memorialize it in a legally binding agreement. Often referred to as a “sweat equity agreement,” these contracts should expressly state what is expected of a recipient (partner, employee, consultation, etc.) and how the work will be compensated.
Sweat equity can help startups and other businesses attract employees and other talent without expending precious funds. However, claims of sweat equity can lead to long, and often expensive, lawsuits. To avoid a similar fate, startups and other businesses should take care to document the expectations of all parties in a written agreement. It is also important to memorialize any changes to the sweat equity arrangement as the business evolves.
If you have questions or if you would like to discuss the matter further, please contact me, Dan Brecher, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
In December, the U.S. Securities and Exchange Commission (SEC) announced charges against two privately held companies for failing to file a Form D notice, which is generally utilized for exempt securities offerings. Here, the SEC’s enforcement sends a strong message: compliance with regulatory requirements is not optional and failure to comply can have significant consequences. […]
Author: Kenneth C. Oh
On February 14, 2025, the Office of General Counsel (OGC) of the National Labor Relations Board (NLRB) under Acting General Counsel William B. Cowen issued Memorandum 25-05, “New Process for More Efficient, Effective, Accessible and Transparent Case handling.” The Memorandum rescinds nearly all of the Memoranda issued by his direct predecessor, Jennifer Abruzzo, setting the […]
Author: Matthew F. Mimnaugh
If you purchase real property from a foreign person or entity, you may be required to withhold taxes from your payment to the seller under the Foreign Investment in Real Property Tax Act (FIRPTA). The federal tax law is designed to ensure that foreign sellers pay any applicable capital gains tax on profits realized from […]
Author: Jesse M. Dimitro
Your home is likely your greatest asset, which is why it is so important to adequately protect it. Homeowners insurance protects you from the financial costs of unforeseen losses, such as theft, fire, and natural disasters, by helping you rebuild and replace possessions that were lost While the definition of “adequate” coverage depends upon a […]
Author: Jesse M. Dimitro
Making a non-contingent offer can dramatically increase your chances of securing a real estate transaction, particularly in competitive markets like New York City. However, buyers should understand that waiving contingencies, including those related to financing, or appraisals, also comes with significant risks. Determining your best strategy requires careful analysis of the property, the market, and […]
Author: Jesse M. Dimitro
Business Transactional Attorney Zemel to Spearhead Strategic Initiatives for Continued Growth and Innovation Little Falls, NJ – February 21, 2025 – Scarinci & Hollenbeck, LLC is pleased to announce that Partner Fred D. Zemel has been named Chair of the firm’s Strategic Planning Committee. In this role, Mr. Zemel will lead the committee in identifying, […]
Author: Scarinci Hollenbeck, LLC
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!