I don't see that being a problem if there's a signed contract. It would be like any other liability if the company is sold.

I didn't see anything about a signed contract. A bonus is simply an incentive until it is paid and that incentive can be taken away at any time. Of course, these generally low wage employees are free to try and retain lawyers to argue otherwise, but I expect the cost of that would quickly overwhelm the value of the bonus.

Nope, a contract wouldn't help if he did an asset sale, gave himself a dividend, and then shut down shop.

They should get the funds placed in escrow.

When the startup I worked for was acquired, I got a retention bonus dangled in front of me as an incentive to stick around; one of the terms of the contract is that if I am laid off or if the company has a change of control, then the entire bonus gets paid off immediately.

Of course, I am confident that no matter what happens, the acquiring company will have the cash lying around to pay off my bonus. A small consulting firm... not so much. Regardless of the contract terms, the firm can always declare bankruptcy, in which case the employees expecting their $50K payout can stand in line with all the other creditors.

Yeah, escrow sounds like a good idea for a case like this. (Would escrow be enough to shield the money in case of bankruptcy? My Google-fu is not helping.)

A smart employee would make sure that such a contingency was added to the contract; e.g., if you sell the company at two weeks before my five-year anniversary, I get the pro-rated bonus.

Company directors generally have a fiduciary duty to creditors to ensure that a company is solvent.

Paying a dividend knowing that it would result in the company being unable to pay its liabilities is therefore a breach of that fiduciary duty.

However, even if there is a contract I bet it allows staff to be made redundant if the company decides not to do something without getting paid out, so that would be a possible loophole.

It's likely he made enough from the sale of his last startup that he wouldn't care about an exit. Thus, this could be his signal that he's staying in this company for the long-run. Since he doesn't plan to sell the company, stock probably won't be worth that much (unless they go public). But a 5-year retention bonus could turn out to be pretty good.

This isn't a big incentive for a tech startup employee (who could make $50K from 6 months of stock options). But for the people this guy is hiring, the bonus could be a morale booster and a pretty good deal.