Is there an inbetween step between "a trial period" and "co-founder"?


6

Greetings,

I am planning on joining a start up with someone as a co-founder and right now we're in a hurry to get product off the ground. I've worked with this person in
a trial period and I believe that we has the skills to make this company work. He has established the S-Corp company and been in business for a while.

I would like to defer the bulk of the legal costs for the start up by having an "Memorandum of understanding" on the important terms of the co-ownership.

Thus, resources can be spent on making product rather than atticipating and preparing for success that happens about 1/3 of the time. And legal is expensive, but probably
less expensive than a lawsuit. Ergo, I will be running the "MOU" we reach though a lawyer regardless.

Unfortunately, this will be my first start up, so I am unaware of the "important terms" and what to ask for beyond the basics.

I have covered with him:

  1. Percentage of the company
  2. Vesting period

    2a. As a side question.... How do I prevent myself from being shoved out the door 1 day before the 1 year cliff?

  3. Acceleration of vesting in advent of liquidation event
  4. Money invested

I have the following questions:

  1. Is this a good idea?
  2. What other terms should I put into the agreement? ( while respecting #1 :)
  3. What about a binding abritration clause?

-daniel

Co-Founder Contract Legal Compensation

asked May 23 '11 at 03:01
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Daniel
157 points
  • How are these kinds of trial periods arranged? Assuming you didn't have any stake in the company at the time, did you get anything tangible (wages, money) out of the trial period? Was it all off paper and more of a verbal agreement? – Scott Coates 6 years ago

1 Answer


3

While your intended approach is rational, here's the downside that I see:

  • You (correctly) want the MOU to address all details and address them thoroughly. A short, superficial MOU is of little value and may cause more harm than good.
  • However, even if you are given a list of all of the issues you should address, you are unlikely to put together a very good MOU from the lawyer's perspective. In my experience, reviewing and fixing a client-prepared document never takes less time - and usually takes more time - than my preparing the document myself in the first place would have.
  • As a result, you will have spent a good chunk of the money you would spend with a lawyer to create the appropriate corporate documents rather than an MOU, but you will lack the security of having those corporate documents already in place. Assuming that the existing corporation was formed fully and properly, a lawyer who is experienced working with startups should be able to adapt the corporate documents that you need from those created from other clients with only a modest expenditure of time and, thus, fees.

Disclaimer: This information does not constitute legal advice and does not establish an attorney-client relationship.

answered May 23 '11 at 09:04
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Dana Shultz
6,015 points

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