Stock as Payment
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| Once there was a designer who met a potential client in Tribeca. After exchanging pleasantries and ordering coffee the client began pitching their idea. After the meeting I drew up plans, objectives, timelines, and of course cost. I quickly planned a follow up meeting. The next meeting consisted of more pitching of ideas and name-dropping, but no matter how much I hate discussing money, which I really do, I forced the issue. The conversation went something like this.
Me : “After looking at your needs I made a timeline and looking at the hours times my rate you are looking at a projected cost of … insert very fair price here.?” Client : “Actually I am prepared to offer you stock in my company, is that something you would be interested in?” Me : “I apologize but that is not something I am interested in.” We spoke back and for a few minutes on why it would not be feasible. I explained to him that my main motivation for working is monetary gain, and that I prefer to keep my investments separate from my billable hours. I have made this arguments to a few other clients, their responses… Client : “You are missing a great opportunity” I have heard every single one of these as a rebuttal. Literally someone once called me stupid. Well let’s divorce ourselves from emotion and actually look at this objectively. |
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Disclaimer
We all help each other out. I have done work for little to no money. I have exchanged services, cut my rate by 90%, etc etc. This article is not about that. This article is about protecting yourself from being taken advantage of. |
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| Ok so where were we. Oh yeah little café in Tribeca…
Client : “I am prepared to offer you stock in my company, is that something you would be interested in?” Me : “I apologize but that is not something I am interested in.” Please allow me to be clear. I am not saying that stock or equity are not viable options for payment. They are, but they should not be substitutions for payment. When I am offered “stock” but no cash as payment big red flags go up. I have taken this bait on more than one occasion. It has always led down a dark terrible road. …but I digress. So a client offers you stock in their soon to be company. Let us ask “What does it take to legally offer a company as stock?” Let’s take a peek & rebuttal as we go through this: |
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Prove that your business is profitable and your ideas have potential in order to convince investors that your stock is worth purchasing. You’ll need your complete business and marketing plan, as well as any financial statements or projections, in order to make a convincing argument to potential shareholders.
If this is a new concept, or a new business there probably is not profit. |
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 Get approval from your board of directors and any existing shareholders. If your annual meeting is not right around the corner, arrange for a special shareholder meeting to allow existing shareholders to vote on the idea of selling stock.
There probably is not a board of directors, if there is one, then it is probably in name only. |
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Prepare your stock sales agreements and set a stock price. This topic should be discussed by your board of directors or at a shareholder meeting to be sure that all parties are in agreement. Make sure you set a price that reflects the company’s value, but is not so high that you will turn potential investors. So how much is this company really worth? If the company is projected to make 100k – 3 million dollars a year are they really willing to give you such a percentage for a website? |
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 Have an attorney review your stock sales agreements. You’ll want to be sure that you’ve included the appropriate wording that will protect your business and outline the specific terms of being a stockholder. If you have the resources, it may be beneficial to simply have your attorney or accountant draw up the documents.
If the client is willing to pay an attorney to offer you stock, why would they not pay you 90% and offer you 10% in stock. |
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 Offer your stock for sale. You may want to approach investors individually with an offer to purchase stock in your business. This will give you the most control over who has a stake in your company. Be careful with who you choose, because anyone who owns a share of your company has a voice in how it will be run and managed. You want to choose shareholders who share your vision.
This is very important. Sharing vision. If the company shares your vision, then this step can trump my entire argument. We will touch on this later. |
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| Now that we know all the factors in taking stock for payment, is it realistic? Do you have a vision to share with the client? In my experience I have done quite a bit of pro bono work for charitable organizations. I did this because I shared their vision and was happy to share my skills for the benefit of others. I fed my soul with these projects. But when a client is coming to me with a business proposal I need to insure that I pay my bills. I will not be able to focus on messaging, clarity or any other design decision while having an eviction notice on my door. So let’s use some common sense and street smarts. So a client wants to pay a lawyer to get you to work for stock? The company is willing to offer you 10% of their profits year after year? Say you have your own freelance company that makes a profit of 100k a year, are you willing to part with 10k every single year to have 1 website made? I have been incorporated for 3 years I have had 3 websites so far.
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| If we have a naïve client and a naïve designer this situation is forgivable. Even laughable. However, most of the time it is someone who is trying to take advantage of your ignorance It is our responsibility to ourselves, our creativity and our craft to see past such temporary & greedy gains. The solution that I have found that works for me, and allows me to pay my bills, invest in my retirement, pay my health insurance is to be paid with money. Plain and simple. Now again this doesn’t mean I am inflexible, or that I am not willing to help someone out. To be frank I am in this career because I love it, not for money. If that was the case I’d be on Wall Street. Keep stackin your paper! |
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at least you weren’t told “well I don’t really have much cash but I’ll let you use the work in your portfolio”