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PITFALL: Giving equity to employees prematurely

Many new business owners believe that giving a percentage of the business to employees will create a sense of ownership in this business and engender greater loyalty and work ethic. This is not necessarily true as not everyone has the entrepreneurial spirit. Many people prefer the roll of an employee. They merely want to come to work do their job, collect a paycheck and go home. This is not a bad thing because many jobs require this type of employee. Additionally, giving employees equity can give them the right to vote on important aspects of running the business and they can be entitled to profit distributions during operations and upon the sale of the business. There are many ways to motivate employees to get the best out of them and to reward them when the business is profitable.

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