[Don Plumley]

If you want to give her equity in your company (say that out loud - "give away equity in your company"), then first figure out what the value of the ownership stake should be in say five years. Not in terms of a percentage yet, but in terms of value based upon the additional value you expect her work to bring to your company.

For example, if by being efficient with production, quality, and freeing up your time delivers $1M additional profit (not gross) over the next five years, then is her fair share 1/2 of that? 1/3? 25%? Is is pre or post tax? Dont' forget to deduct the fully burdened cost of her salary over the same period. This is a good exercise to walk through with her to explain how you are deciding what the equity stake should be.

Then based on typical valuation metrics for your industry, figure out what your company will be worth in that same period. That helps put the percentage in perspective.

Since this is all brand new, rather than create a new class of stock today, I'd structure a contract that makes the promise of equity, based upon the company reaching certain financial metrics and her performance being at or above expectations. A percentage of the stock would vest every year with a lump at the 5 year mark. Then you create the new class of stock and issue shares. And to be fair, put in a change of control provision so that if more than 50% of the equity of the company changes ownership (i.e. you sell), then her stock vests immediately.

Just a few thoughts...