Am I a cofounder and how many equity shares should I take?


1

An engineer creates a product with most fundamental functions and is almost ready to establish a new company. He wants me to be in charge of the marketing for the new company/product. For now, only he and I will be working for the company for the next 1~2 years until we have money to hire more people. We are both work part-time on this project/company. There is no pay for this position (there is no funding or revenue now), and only stocks are offered.

The product is demo ready which still needs to be completed with more detailed features and production level visual appearing. My major responsibility (marketing) is to bring in as many as trial users and create case studies and testimonials, and then market it to the pay customers.

Am I a cofounder? and how many equity shares should I take? I don't want (or expect) 50-50 split since he has created the product before I join him to start the company.

Should we also talk about the future hiring opportunity/offer once the company has incomes or funding? I can not work without pay forever. How to define when I should expect regular salary or never?

How is this typically done when 2nd, 3rd, 4th people join the founder in a startup without pay?

Co-Founder Equity Shares Stocks

asked Jun 11 '12 at 00:53
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Thomas Jackson
6 points

2 Answers


1

If you're unpaid, then the only thing you can do is get equity or some sort of right to equity, like options.

So, then, the problem is one of getting equity to people in proportion to their contributions. Right now, this engineer has done 100% of the work and (presumably) provided 100% of the financing, so should get 100% of the initial equity. But, over time, that will change.

The common thing in cases like yours is to award a set number of shares to the engineer without vesting -- he's already earned them. And then, award** a set number of shares to both you and the engineer, with vesting. So, as you work, you get the right to keep more and more of those shares.

For later entrants, the same sort of arrangement is stilll common. However, as time goes by, the value of the company shares will probably go up. If you just award shares to those late entrants, they'll have to pay taxes on them. And, if those later entrants buy shares, they'll actually have to invest real money into them. So, it often makes sense to award stock options or stock appreciation rights to those later entrants.

This advice is really generic though -- these are decisions you should talk over with your attorney, after providing a lot more information about your situation.

[**Note: when 'awarding' shares, there are two options: (1) just give the shares, or (2) allow them to buy shares at current fair-market-value. Those two have different tax consequences.]

answered Jun 11 '12 at 01:31
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Chris Fulmer
2,849 points

0

If this person has built a product that matches a market and all you do is handle the marketing for this group, I don't think you are a cofounder. That doesn't mean you shouldn't get stock (since you're not getting paid), but what have you created? You're almost like a commissioned sales person at this point.

However, you need to identify what you could do to deserve being a cofounder. If you identify a new market or drastically suggest changes to the application to address the current market, you should get credit for that. You need to work this out in the contract if you are not satisfied with the the amount of stock you get at first. And since you are taking that risk (not getting a high percentage right away, but soon could deserve more)k you could end up with more stock in the long run.

Right now, it just remains to be seen what it is you have to offer beyond just being an independent marketing person getting some sweat equity.

answered Jun 11 '12 at 07:27
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Jeff O
6,169 points

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