Rajah Lehal

Software Development/Master Services Agreements Part IV: Compensation in Cash and Alternative Forms of Compensation

September 05, 2016

Links from this article: here

COMPENSATION

Compensation in cash (or freely available funds, which could also mean payment by cheque, bank draft, wire transfer, email money transfer and so on) is the most common form of compensation. It should be noted that it is more difficult to deposit more than a certain dollar amount in cash since this will trigger a red flag from banking authorities related to anti-money laundering, and anti-terrorism legislation. Compensation may also be non-monetary. This can take the form of share options offered by the customer. This is especially helpful for start-up companies who cannot spare funds to pay the vendor but can offer shares in their company. This represents a risk for the vendor as the company may not succeed but it can also be considered an investment in which they have an influence on the success of the business.

TAX CONSIDERATIONS

As a heads-up, there are certain tax considerations with respect to the form and timing of equity or share-based compensation. If equity compensation is paid periodically, this might be considered part of the annual compensation taxable at the end of the tax year, rather than an investment. This can be contrasted with shares received as “founder shares” that are not tied to a periodic system. These may be considered “capital property” for the purpose of tax filings. Advice should be sought from a tax expert concerning these items.

To continue reading additional articles within this series, click here.

Commercial Activities
Master Services Agreement
Software Development

Written by Rajah. Rajah Lehal is Founder and CEO of Clausehound.com. Rajah is a legal technologist and technology lawyer who is, together with the Clausehound team, capturing and sharing lawyer expertise, building deal negotiation libraries, teaching negotiation in classrooms, and automating negotiation with software.