Hybrid Equity + Cash Compensation Model

Overview

LianaBanyan offers service providers (consultants, contractors, specialists) the option to be compensated through a combination of cash and equity/credits, reducing upfront cash requirements while giving providers ownership in the projects they help build.

Model Structure

Option A: Cash + Equity Split

Use Case: Service provider wants partial cash now + equity upside

Structure:

• 50% Cash: Paid upfront or in milestones
• 50% Equity: Converted to shares/credits in the specific project they’re working on

Example - Kickstarter Campaign Consultant:

• Standard Fee: $10,000 for full campaign development
• Payment Structure:
  • $5,000 cash (paid in milestones: 50% start, 50% at launch)
  • $5,000 equity equivalent = 0.5% ownership in HexIsle project OR 5,000 LB credits

Option B: Deferred Cash with Interest

Use Case: Service provider prefers cash but willing to wait for project success

Structure:

• 100% Cash payment deferred until project reaches funding milestone
• +20% bonus for accepting deferred payment
• Payment triggered when project hits crowdfunding goal

Example - Kickstarter Campaign Consultant:

• Standard Fee: $10,000
• Deferred Payment: $12,000 (paid when HexIsle hits $100K on Kickstarter)

Option C: Full Equity

Use Case: Service provider wants maximum skin in the game

Structure:

• 100% Equity in the project they’re supporting
• Typically 2x equity value vs cash equivalent

Example - Kickstarter Campaign Consultant:

• Standard Fee: $10,000
• Equity Payment: 1% ownership in HexIsle project OR 20,000 LB credits

Legal Framework

For Independent Contractors (Current Use)

Agreement Type: Independent Contractor Agreement with Equity Compensation Addendum

Key Clauses:

1. Scope of Work: Clearly defined deliverables (e.g., “Complete Kickstarter campaign including video, copy, graphics”)
2. Compensation Structure: Cash + equity split clearly stated
3. Equity Vesting:
   • Cash portion: Paid per milestone
   • Equity portion: Vested upon project completion OR proportionally per milestone
4. Equity Conversion:
   • If project = LB internal (HexIsle): Converts to LB shares
   • If project = external maker’s project: Converts to that project’s equity shares
5. IP Assignment: All work product belongs to project/LB
6. Termination: What happens to unvested equity if terminated early

Sample Agreement Structure

INDEPENDENT CONTRACTOR AGREEMENT
Between: LianaBanyan LLC (Wyoming)
And: [Contractor Name]

Project: HexIsle Kickstarter Campaign Development

Scope of Work:
- Campaign page design and copywriting
- Video script and coordination
- Marketing strategy and launch plan
- Backer tier structuring
- 30-day campaign management

Compensation:
Total Value: $10,000

Payment Option Selected: [X] Option A - 50/50 Split
- Cash Payment: $5,000
  - $2,500 upon contract signing (Milestone 1: Campaign planning complete)
  - $2,500 upon campaign launch (Milestone 2: Campaign goes live)
  
- Equity Payment: $5,000 value
  - Converts to: 5,000 LianaBanyan Credits OR 0.5% HexIsle project equity
  - Vesting: Upon successful campaign launch
  - Conversion Rate: $1 = 1 LB Credit = 0.0001% project equity

Equity Terms:
- Equity vests upon completion of Milestone 2
- If contractor selects LB Credits: Credits deposited to contractor's LB account
- If contractor selects project equity: Documented in project cap table
- Equity subject to LB's standard charter provisions and IP framework

Termination:
- If terminated before Milestone 2: Only cash portion for completed work is paid
- Equity portion only vests upon full completion

For Your Kickstarter Consultant

Recommended Approach:

Since you’ve already hired them, you can present this as a value-add option:

“I’d like to offer you the option to take part of your payment in equity in the HexIsle project. This is optional—I’ll pay you in full cash if you prefer—but if you believe in what we’re building, you can convert part of your fee into ownership.”

Suggested Terms for Your Consultant:

• Standard Fee: [Whatever you’ve agreed to - let’s say $10K for example]
• Option 1 (Current): 100% cash as agreed
• Option 2 (Equity Add):
  • 50% cash upfront ($5K)
  • 50% equity (0.5% of HexIsle OR 5,000 LB Credits)
  • Equity vests when campaign launches successfully

Why this works:

• Reduces your immediate cash outlay by 50%
• Gives them upside if HexIsle succeeds
• Tests the model with a real relationship
• Documents the system for future makers

Integration with LB Platform

Automated Contract Generation (Future Feature)

When you hire through LB’s platform:

1. Maker posts project need (e.g., “Need Kickstarter campaign manager”)
2. Service provider responds with quote
3. System offers compensation options (Cash / Hybrid / Equity)
4. Contract auto-generates with selected terms
5. Milestone tracking and payment automation

For External Makers Using LB

When other makers use LB to hire services:

• LB facilitates the hybrid payment
• LB holds equity in escrow until milestones complete
• Service provider gets equity in maker’s project (not LB)
• LB charges small facilitation fee (5% of transaction)

Tax Implications

For Service Provider:

• Cash portion: Taxed as ordinary income in year received
• Equity portion:
  • If LB Credits: Taxed as ordinary income when credits are used/converted
  • If project equity: Taxed when equity is sold (capital gains treatment possible)

For LB/Project Owner:

• Cash payment: Business expense deduction
• Equity payment: No immediate tax impact (dilution of ownership)
• Must track equity grants for cap table accuracy

Recommendation:

Both parties should consult tax professionals. Equity compensation has specific IRS rules (especially 83(b) elections if applicable).

Insurance Considerations

Service providers compensated with equity may need:

• Professional Liability Insurance: Covers errors/omissions in their work
• General Liability: If they’re on-site or at events

LB should carry:

• Errors & Omissions (E&O): Covers if LB’s platform facilitates bad contracts
• General Liability: Covers operational risks
• Cyber Liability: If platform stores sensitive contractor data

Risk Management

For LB:

1. Vesting schedules: Protects against contractor no-shows
2. IP assignment: Ensures all work belongs to project
3. Clear milestones: Prevents disputes about “completion”
4. Written agreements: Every. Single. Time.

For Contractors:

1. Equity documentation: Get it in writing with clear conversion terms
2. Understand dilution: Equity percentage can shrink with future funding
3. Exit terms: What happens to equity if project fails or is acquired?

Scaling This Model

Phase 1 (Now): Manual Agreements

• Use template agreements with your lawyer
• Track equity manually in spreadsheets
• Document for future automation

Phase 2 (MVP Platform): Semi-Automated

• Contract templates in platform
• Manual approval but automated generation
• Equity tracking in database

Phase 3 (Full Platform): Fully Automated

• Smart contracts for equity vesting
• Integrated milestone tracking
• Automatic payment releases
• Real-time cap table updates

Questions for Your Lawyer

When presenting this to your lawyer, ask:

1. Entity Structure: Should equity grants come from LB LLC or from individual projects?
2. 83(b) Elections: Do contractors need to file these for equity compensation?
3. Accredited Investor Rules: Any SEC restrictions on who can receive equity?
4. State Law: Wyoming-specific rules on equity compensation?
5. Cap Table Impact: How to structure this for future investors?
6. Termination Clauses: What’s standard for unvested equity?

Real-World Example: Your Kickstarter Consultant

Current Situation:

• You’ve hired a consultant for Kickstarter campaign
• Fee is [X amount] - let’s assume $10,000
• You have the cash to pay them

Proposed Pilot:

1. Offer them the hybrid option (optional, not forced):

   • “I’m building a model where service providers can take equity in the projects they help launch. Would you be interested in taking 50% of your fee ($5K) in equity in HexIsle? You’d own 0.5% of the project and share in its success.”

2. If they accept:

   • Draft Independent Contractor Agreement with Equity Addendum
   • Pay $5K cash in milestones
   • Document 0.5% HexIsle equity grant
   • When HexIsle launches on Kickstarter, their equity vests
   • Track this as Case Study #1 for the model

3. If they decline:

   • Pay full cash as originally agreed
   • Still document the model for future use
   • You’ve proven you CAN offer it, which attracts equity-minded talent

Why this works as a pilot:

• Low risk (you can afford full cash if they say no)
• Real-world test of the model
• Creates documentation for future makers
• Your consultant becomes a potential advocate (they’re invested in HexIsle’s success)

Integration with LB Charter

This model aligns with:

• Principle 5: Distributed Ownership - Service providers become stakeholders
• Principle 7: Value Creation - Labor directly converts to equity
• Principle 9: Transparency - Clear compensation structures
• Principle 11: Skills-Based Economy - Work creates tangible value (equity)

Next Steps

1. For Your Current Consultant:

   • Draft specific agreement using template above
   • Present hybrid option (optional)
   • Have lawyer review before signing

2. For LB Platform:

   • Build contract generation system (Layer 2)
   • Create equity tracking in database (Layer 2)
   • Automate milestone payments (Layer 3)

3. For Future Makers:

   • Document this model in Legal Formation Services
   • Create templates they can use
   • Offer LB facilitation as a service

Status: Draft for legal review Next Action: Present to lawyer for Wyoming LLC-specific modifications Related Docs:

• LEGAL_FORMATION_SERVICES.md
• LIANA_BANYAN_CHARTER.md (Principles 5, 7, 9, 11)
• IP_CONTROL_FRAMEWORK.md (for equity in IP-derived projects)