What is equity?
Equity, often referred to as shareholder equity or in the case of a private company, owner’s equity, represents the value returned to shareholders once all assets are liquidated and all debt paid. The term equity is commonly used as shorthand for a person’s ownership interest or shareholdings in a company.
Equity isn’t just a number on a balance sheet, it can reflect ownership influence, voting rights, and future earnings potential. In many organizations, particularly high-growth startups and private firms, equity is also used as a powerful tool to attract and retain talent, offering employees the opportunity to share in the company’s success. The nature and value of equity can vary significantly based on the company’s structure, performance, and the terms set out in contracts or shareholder agreements.
How is equity used in compensation packages?
Equity earning opportunities can play a crucial role in executive and employee compensation packages, often demonstrated through shareholder programs or directly providing an equity stake in the company. These compensation strategies often incorporate short- and long-term incentive programs that include options, shares or in the case of long-term incentive programs, restricted share units, performance share units and/or deferred share units. The eligibility criteria and rules governing the shareholder programs are frequently set out in offers of employment and company policy documents. The means by which shares are to be valued can also be set out in the company’s shareholder agreement.
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What is an equity claim?
As a business owner or shareholder in the company, you have a claim to a certain amount of the equity from the company, meaning the financial value or ownership interest you hold in the business. An equity claim is the legal assertion of that entitlement. It typically involves seeking your rightful share of the company’s value, often based on the type, amount, and valuation of shares or units you hold.
These claims can arise in a variety of contexts: after a company sale, during a dispute between shareholders, or when an employee exits and believes they’re owed vested equity under a compensation agreement. Equity claims may involve demands for payment, issuance of shares, or equitable remedies like specific performance especially where share-based promises were made but not honoured.
Why do equity claim disputes occur?
Equity claim disputes often emerge when an employee or investor in the business is leaving the company and there is a difference of opinion around:
- the ownership in the business
- the entitlement to the shares in the long-term incentive program
- the vesting and value of the shares
- whether some or all outstanding equity is vested, discounted, or forfeited upon termination
The provisions contained within an employment offer or contract, the company’s policy documents governing shareholder, bonus, and incentive programs, and the shareholder agreement are essential to accurately assessing your rights and protecting your equity stake.
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How can Whitten & Lublin assist you in an equity claim?
Equity claims in Ontario arise in many professional contexts most often when someone is exiting a business relationship and seeking what they believe they’re owed. Whether you’re a departing executive, early-stage investor, or employee with share entitlements, your rights to equity should be clearly defined, respected, and enforced. If they’re not, legal action may be necessary to obtain what you’re entitled to under Ontario law.
At Whitten & Lublin, we assist clients throughout Ontario in asserting and resolving equity claims whether that means reviewing a shareholder agreement, challenging the enforcement of vesting rules, or pursuing equitable relief in court. Our lawyers have broad experience in interpreting, and disputing equity claims for business owners and employees who have shared in a company.
At its core, an equity claim is about fairness; claiming what you believe you’re rightfully owed from a business you’ve helped build, fund, or grow. It often comes up when someone has an ownership interest in a company, maybe as a shareholder, investor, or employee with share-based compensation, and that interest is suddenly in question. These claims usually revolve around shares, value, or promised equity that hasn’t been delivered.
But it’s not always about formal ownership. In many cases, it’s about entitlements buried in contracts, employment agreements, or vague verbal promises that were never properly honoured. In Ontario, equity claims are governed by a mix of corporate law, employment law, and equity principles which means understanding both the black-and-white of the contract and the grey areas of fairness.
An example would be an early-stage employee joins a startup and, in lieu of a higher salary, is offered a chunk of equity, like restricted share units (RSUs) or options that vest over time. Fast-forward a few years, the company takes off, but just before the employee’s equity fully vests, they’re let go. Suddenly, the shares they believed they had earned are off the table. The company says the conditions weren’t met.
But the employee has emails, offer letters, and a contract that tell a different story. That’s where an equity claim comes in. It could involve demanding the issuance of shares, compensation based on the current market value, or challenging a forfeiture clause. These disputes don’t just happen in startups either. They show up in corporations, partnerships, and even family businesses when expectations and documents don’t line up.
There’s no one-size-fits-all process for claiming equity but it always starts with the paperwork. To make an equity claim, you must first gather documentation such as your employment contract, shareholder agreement, or offer letter and assess your legal entitlements. It’s about understanding what you were promised versus what was delivered. With support from an experienced employment lawyer, you can determine whether you’re owed shares, compensation, or equitable relief. Sometimes the path is a straightforward negotiation. Other times, it means seeking equitable relief through court or a legal demand for specific performance. Either way, timing matters. These cases often show up at critical junctures: resignations, firings, mergers, or IPOs. Don’t wait until the dust settles. Act early, and with the right legal guidance, you can often preserve the value you helped create.
A debt claim comes into play when someone has loaned money to a company or is owed a specific amount like a lender, creditor, or service provider. These claims are based on clear repayment terms and typically include interest, a repayment date, and enforceable legal obligations. In a dispute or company wind-down, debt holders usually get paid first. An equity claim, on the other hand, is about ownership. If you’re a shareholder, investor, or someone with share-based compensation, your equity claim is tied to your stake in the company.
You’re not owed a fixed amount but rather you’re entitled to a share of the company’s value, profits, or assets, based on your ownership interest. That can mean more upside, but also more risk. In legal terms, equity holders come after creditors when assets are distributed. In short, debt claims are about what a company owes you. Equity claims are about what you own. If you’re unsure where your situation falls or believe your rights are being ignored, our team can help you identify your position and protect what’s yours.
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In need of legal advice? We are committed to treating your case with the care, dedication, and compassion that you deserve. Contact our employment and labour lawyers today to learn how we can help you understand and resolve your workplace legal matter.
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