Management equity refers to ownership shares in a company that are given to key employees, executives, or managers as part of their compensation, typically subject to vesting schedules and performance conditions.
Management equity usually comes with restrictions that ordinary shares don't have, such as vesting periods (often 3-4 years) and conditions tied to continued employment.
If you leave the company early, you might forfeit unvested shares, whereas regular shareholders typically face no such restrictions.
Companies use management equity to attract talented people when they can't afford high salaries, particularly in early stages.
It also ensures that key team members have "skin in the game" and benefit directly when the company succeeds, creating powerful alignment between personal and business interests.
Your vested management equity typically remains yours, but unvested portions are usually forfeited back to the company.
Some agreements include "good leaver" and "bad leaver" provisions that determine whether you can keep your shares and at what price the company might buy them back.
Management equity can trigger tax obligations at various points: when granted, when vested, when sold, or when dividends are paid.
The specific tax treatment depends on the type of equity (shares vs options), the terms of your agreement, and local tax rules, so the actual liability varies considerably.
Management equity usually means actual shares with immediate (though restricted) ownership, whilst stock options give you the right to buy shares at a set price in the future.
Options only become valuable if the company's value increases above that set price, whereas shares have value from day one.
Yes, management equity can be diluted when the company issues new shares for fundraising or other purposes.
Your percentage ownership decreases, though the absolute number of shares you hold stays the same - this is why understanding your fully diluted ownership percentage matters more than just counting shares.
