What is equity participation? Equity participation refers to how individuals can own shares of a company or property. In simple words, it is the ownership of shares. One can purchase the shares by allowing partial ownership as against financing or through available options.
An equity participation plan agreement is maintained in every corporate to keep track of various investment schemes and plans for the employees of the company. The equity participation agreement gets drafted in such a way that the directors and board of supervisors of the company allow special incentives relevant to the share choices and also include awards from the share operations, which in turn benefit the company in many ways.
Purpose of the Equity Participation Plan Agreement
The primary purpose of the agreement is to enhance the profitability of the enterprise. The agreement binds the monetary rewards of the employees of a company with the output or profits of the company. This purpose, in turn, will encourage or offer an opportunity to the employees to make decisions that have a direct effect on the profits of the company, thereby giving a boost to the overall development of an enterprise.
Inclusions in Equity Participation Plan Agreement
Some of the primary inclusions that form a part of the equity participation agreement are:
- Parties involved
The agreement mentions the parties involved in the plan agreement. For instance, if a private limited company wants to draft an equity participation agreement for its employees, then the parties involved are the employees and the company.
- Effective date
The equity participation agreement comes into effect from the date mentioned in the agreement.
- Benefits of Equity Participation Agreement
There are several pros of the equity participation agreement, and we have mentioned them below:
- An effective finance strategy
The equity participation agreement is seen as an essential and working finance strategy in corporations, whether private entities or the public. The planned and detailed schemes and the records of the maintenance of various stocks help in the growth and development of the corporation.
- Helps in the financial success of the company
Any corporation or firm has numerous employees, executives, consultants, directors, and other staff members who cohesively run the firm. The equity participation agreement broadens the provision for increased incentives for every working member of a firm. This inclusion provides better scope for the overall financial success of the company.
- Extends the ownership of the company
An equity participation agreement offers equal opportunity for ownership of the stocks and shares of a company to both personnel as well as professional individuals. It broadens the ownership of the company’s stock capital.
- Beneficial for companies operating in new horizons
The equity participation agreement can be utilized by organizations that plan to operate in economies wherein national and international governments would take interest due to high rewarding developmental plans. Ownership of shares would permit governments to play a vital role in the company’s decision making.
Types of Equity Purchase Plan Agreement
There are two types of equity participation plan, and these are:
- Real Estate Equity Participation Plan Agreement
The real estate equity participation agreement specifies the difference between the market price of the real estate and the amount owed to the lender to whom the real estate property is duly mortgaged as security in exchange of a loan. The real estate equity participation agreement is beneficial as it maintains a steady flow of cash, hedges against inflation make provisions for tax benefits, and keeps the balance for a constant level of appreciation of the real estate property in the market.
- Private Equity Participation Plan Agreement
The Private Equity Participation Agreement includes the investment from accredited investors and institutional investors who can readily invest funds for a lengthy period. It is a beneficial tool for companies as it permits access to the liquidity of funds, which is otherwise not the case with traditional methods of lending, borrowing, and financing, as a whole.
Key Terms of Equity Participation Plan Agreement
It would be helpful to refer to a sample equity participation agreement and making the necessary modifications. The points you need to consider are:
- Award holders
This term refers to the people who are holding the shares, stocks, or entities that are related to the agreed deal which gets used in private equity participation agreement.
It refers to the entities or parties who are related to the involved entities in the agreement. Affiliates may or may not have any direct association over the contract.
It refers to any corporation, individual, partnership, limited liability partnership or even a government entity involved in the agreement.
Here, cause refers to the primary purpose of the equity participation agreement. The term can also extend referring to the process of exclusion of any employee with a part-time or full-time association with the company.
Equity participation is an integral part of every corporate or real estate sector. All in all, it is a beneficial tool for both the company as well as the employees. Companies benefit from the participation of the employees in the progress of the company as their decision making affects the growth of the company, whereas the employees benefit from direct ownership of shares. For more information, kindly download the necessary PDFs, documents, and templates to get in-depth insight.