What is the compensation for time/technical expertise other than equity in a start-up?


2

I am an Audiologist and have started a couple of clinics with a friend. He already owns a full-time clinic and now we have started two visiting sites of that permanent site. I have left my job and started working on developing those two new visiting sites(twice a week-one day each site). I have a 50% equity in whatever value those two new clinics have if we work for two years together at least. He has bought all the equipment etc..(of course he will get depreciation for those in tax) and paying for rent and other expenses(which will be paid from the profit once we are profitable) and I work in those clinics without salary. I am working three days in his permanent site so that my expenses are met. I am of the view that working for two days without salary at new sites equates the value brought by him(intellectual-business registration or affiliation with Govt. agency Medicare and provider no.). Now that we are going to increase no. of days at visiting sites, I feel that I should be paid for those days. What is the advise?
P.S. 1)He does not work at two sites.
2)He owns the parent company(100%) under which new sites were opened. It is our understanding on paper that I will own 50% of whatever the value of those sites will be.
3)We intend to form a new company once those clinics are up and running or merge them with already existing company, after deciding each one's share.

I am interested in knowing whether in this scenario, Does it make sense to get paid for extra days as I am developing those sites and two days work equates($40000 p/a) for the value he brings, he wants me to take the money from ledger for my expenses and later that will be deducted from my profit share. Whereas I feel I should be paid other that equity, before calculation of profit.

Equity Partnerships

asked Nov 29 '11 at 02:08
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Ash Sahni
11 points
  • You need to make sure you have your equity agreements in the proper legal format and shares issued before you go any further. – Susan Jones 9 years ago

2 Answers


1

In the book, eMyth, Michael Gerber discusses the "rules" associated with "owning a business" and going to work "in that business." If you haven't read it, I suggest you do.

First, as an owner, there are certain rules that govern your ownership of the company. Those rules do not apply to you as an employee of the company. Second, as an employee, you are going to work in the business, and therefore must follow the rules set within that business and you NEVER make exceptions for yourself because you are an owner. This can lead to major problems in a business.

You have fallen into the predicament of blurring the lines between ownership and employee by offering to commit your service for equity. There is nothing wrong with this, but I think you should get clear with your business partner about what the exact rules are. From your statement, it seems there is some ambiguity about what your equity investment is exactly.

For example, the statement about him not working in the clinic is irrelevant to the conversation. He is an owner, not an employee. Don't try to apply the rules of being an employee to him as an owner, because they do not apply. The only thing that is relevant is what you agreed to do in order to become an owner.

If you were to hire an employee to do the work you are doing now, you would pay them as an employee, right? That means the money would come out of your revenues and would cut into your profits. Therefore, if you follow Gerber's suggestions, you should treat yourself the same, because in this instance, you are an employee, NOT an owner.

If you have agreed to work 2 days per week (for free essentially), and the proceeds of what the payment would be are going into your equity investment, then those 2 days are your equity investment. I.e. pretend you are getting paid as an employee, and then taking that payment and paying it back into the company.

Any other days you work, you should be treated exactly as any other employee, using the same rules as other employees in terms of how you are paid, the rate of pay, etc.

This, of course, is just my opinion, and I hope it gives you some perspective on how to look at the situation you are in and create some guidelines, rules and boundaries regarding your involvement in the business, which is varied and complicated.

answered Nov 29 '11 at 08:06
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Ralph Miller
96 points

0

Why dont you simply ask for money or if the return on the investment does not allow it an IOU.

answered Nov 29 '11 at 02:39
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Jclozano
101 points

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Equity Partnerships