How should additional cash contribution be treated after beta launch?


1

Me and my co founder have finished the beta version of our product and we should be launching within the next two months. The equity percentages have been agreed based on both our contributions in terms of time and cash injected till now.

We are in the process of incorporating however we both know that additional cash needs to be injected in the company until it can self sustain. We have an estimate of how much is required but the exact figure might be higher or lower. The cash will be contributed by me, my co founder will not inject any cash during this period.

In this case what can we do? Do we incorporate based on estimated cash needed now and reflect in the equity percentages or agree to change the articles once the final cash requirements are done and paid up a year or so down the line?

Equity

asked Sep 22 '13 at 02:44
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Unique81
6 points

1 Answer


1

You could do a number of things:

  1. Structure the extra cash injection as a loan from you to the firm, leaving the original equity splits alone.
  2. Make the adjustments to equity now based on a fixed amount of additional cash injected by you, which goes into the company's coffers regardless of whether it's enough or too much -- if more cash is needed later you solve that problem then, but once you hand the cash over for equity that's the deal done.
  3. You could issue more stock later and then use your cash injection to buy that extra stock, thus diluting your partner's share.

Personally, I find it odd that you are only incorporating now, at beta launch. Ultimately, you and your partner need to agree the split and trust each other up front. There may be points in the future when either you or him/her cannot contribute equally to the business in terms of time, cash, or whatever. You need a way of handling this, whether it's remuneration adjustments, bonus payment forefeits, or dilution...

answered Sep 22 '13 at 05:31
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Brad
178 points

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