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Work for Equity: Operational Guide to Valuation Expertise

Work for Equity: Operational Guide to Valuation Expertise

8 August 2023

work for equity

Work for Equity is an exercise of increasing share capital  which professionals, external consultants, employees, partners, administrators, or more generally, labor or service providers, whether they are individuals or legal entities, are remunerated by assigning them shares, quotas, or participatory financial instruments of the startup or innovative SME, instead of traditional monetary compensation.

Work for Equity can encompass all human resources working for the company: partners, administrators, employees, suppliers, professionals, allowing the company to capitalize itself by valuing the work of these individuals.

The figurative compensation for the work of these individuals is indeed valued and added to the share capital without any tax imposition on the company or the labor/service provider. This exemption also extends to social security contributions for administrators, employees, or continuous collaborators (not for external suppliers and professionals).

1) Work for Equity: Regulatory References

The Growth Decree 2.0 (D.L. 179 of 18/10/2012, converted with amendments into L. 221 of 17/12/2012 - hereinafter Growth Decree 2.0) established the possibility for startups and innovative SMEs to remunerate the following subjects through the Work for equity formula:

  • partners;
  • administrators;
  • employees;
  • collaborators;
  • consultants;
  • professionals;
  • suppliers of works and services.

2) Objective of the expertise

The Regulation establishes that authorized subjects prepare an expertise report prepared by an expert appointed by the parties, in order to economically value the contributions and services provided.

3) Scope and limitations of the assignment

The expertise is based on the following assumptions and related limitations:

  • the evaluation is carried out based on economic and market information available as of the preparation date;
  • all necessary information for the completion of this assignment is provided by the company, which will be responsible for the accuracy, truthfulness, and completeness;
  • the professional assignment does not involve any in-depth analysis of the performance of collaborators for the company or the achievement of objectives defined by agreements;
  • the valuation is carried out solely to confirm that the value of the provided contributions is at least equal to the value attributed to them in individual agreements with collaborators;
  • the expertise does not aim to verify the actual innovative SME nature of the company, and thus does not delve into the analysis of relevant documentation.

4) Work for Equity Plan: Considered Documentation

Work for equity plan The reference documentation includes, among others, the following documents:

  • private writings containing the agreement for professional services between collaborators and the company;
minutes of the partners' meeting in which the partners' meeting authorizes the signing of subsequently stipulated contracts for professional collaboration;
  • resumes and reports of each collaborator;
attestation given by the temporary sole administrator regarding the objectives achieved by each collaborator;
  • documentation related to invoices issued by collaborators;
minutes of the partners' meeting in which the partners' meeting ratifies the completed expected services;
studies and research related to the value to be attributed to various professional services.

Particular attention must be paid to agreements regulating the labor performance between the collaborator and the company. In particular, it should include:

  • indication of the reference project;
  • collaborator's objectives;
  • anticipated activities;
  • output that the collaborator must produce;
  • recognized value of the project;
  • methods of verifying the achievement of objectives.

In the case of collaboration provided by a legal entity, it is also necessary to specify the names of the individuals involved in the assessed project.
In addition to the reports, it is necessary to analyze the CVs of collaborators to verify their autonomy and decision-making abilities that allow for the realization of objectives defined in agreements between parties.

5) Evaluation of Collaborators' Contributions Introduction

In preliminary terms, it is necessary to verify the classification of professional services provided by different collaborators.
Particular attention, for Work for Equity, should be given to contributions made by collaborators classified as managerial activities. These contributions should be evaluated based on the activities required, the timing of execution, as well as the degree of autonomy and independence required for carrying out the assignments.

Article 2095 of the Civil Code includes "executive" among the possible categories of subordinate workers and does not specify the requirements. In this regard, reference should be made to jurisprudential clarifications.

In particular, jurisprudence has developed a series of requirements that qualify belonging to this category. Below is a summary of some of these and an indication of corresponding jurisprudence:

  • autonomy: the executive is in charge of directing the entire company organization or an autonomous sector of it (Cassazione civile, sez. Lavoro, sent. N. 7295 of 23/03/2018) considering the complexity of the company's structure (Cassazione civile, sez. Lavoro, sent. N. 19579 of 04/08/2017); the executive enjoys margins of autonomy and the employer's power is manifested not in continuous and pervasive orders and controls, but essentially in the issuance of general programmatic indications (Cassazione civile, sez. I, sent. N. 9463 of 10/05/2016);
  • initiative and discretion: the executive is in charge of directing the entire company organization or an autonomous sector of it and is invested with attributions, powers of initiative, and discretion (Cassazione civile, sez. Lavoro, sent. N. 7295 of 23/03/2018);
  • decision-making impact: the executive is invested with powers that allow them to provide direction to the company's management (Cassazione civile, sez. Lavoro, sent. N. 7295 of 23/03/2018);
  • trust: the executive is endowed with powers of initiative and discretion within the employer's directives and programmatic lines (Cassazione civile, sez. Lavoro, sent. N. 7295 of 23/03/2018);
  • high professionalism: executives possess advanced scientific and technical knowledge or, in any case, have professionalism that positions them with particular strength in the labor market (Cassazione civile, sez. Lavoro, sent. N. 20805 del 14/10/2016)

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