as one of the co-founders, can i have an equity and profit share both in mother holding corporation and subsidiary holding corporation?


the funders for my projects plan to put up a holding corporation. this holding corporation is intended to fund feasible projects by various project proponents not only those projects by me but majority of the projects are contributed by me. and the more projects for them to be funded, the better for them since this is where they will earn. i also helped them considerably by providing info on how to set up a holding corp., advantages and disadvantages, organizational chart and structure, sharing scheme etc. since they are not so adept into the details of setting this short, i am just a here on a sweat equity since i have no capital to invest here.

they want me to put up another subsidiary holding corporation under their mother holding corporation wherein all the projects contributed by me for funding will be under it. and they don't want me to have a seat in the board of the mother holding corporation nor to have an equity share or profit share nor a position in the mother holding corporation.i suggested that i be the COO since i am exposed in handling the operations of the projects but they equity share and profit share will be in the subsidiary holding corporation.

my proposal is: i put up the subsidiary holding corp for my projects but at the same time i have a seat in the board in the mother holding corp and be the COO in charge of all projects evaluation for funding including those that were applied directly to the mother holding corp. and not my projects as well as the monitoring of the operations of such projects and may have a profit share in those projects and also have an equity share.

they declined my proposal for the following reasons:
1.)that i may have a conflict of interest and have double compensation if i still have a seat in the mother holding corp.

my biggest concern/s are the following:

1.)if other project proponents would know that the mother holding corp. is accepting other project proponents/applicants directly to their holding corp., those that i have contacted already may just go directly to their corp rather than to be under the subsidiary holding corp handled by me and where i have my equity and profit share. in other words, i don't have a very strong protection even though they intend to give me a written full authority for those project proponents to just contact me and be under my subsidiary holding corp.

2.)if i dont have a seat in the mother holding corp.,i may not have a voice in the decision making regarding the evaluation and eventually approval for funding of my projects.

3.) if i dont have a seat in the board, mother holding corp may not easily release funds which may affect the operations of the projects under the sub holding corp.or the worst they may just easily withdraw their investment.

4.)those projects contributed by me for example on the real estate development which will be under the subsidiary holding corporation may be competing with the same nature of the project on real estate dev. contributed by other project proponents and becomes another subsidiary corporation of the mother holding corp.meaning, under one mother holding corp., there will be same industry projects competing against each other. one that is under my subsidiary corp and the other one is another subsidiary corp put up by the mother holding corp. for the projects contributed by the other project proponents.

i just want to be protected since majority of the projects were contributed by me and i dont want to be under their mercy in the future.

Co-Founder Incorporation Equity Legal

asked Mar 14 '12 at 13:48
1 point
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  • Let me get this straight. You are advising the founders on how to setup their structure, shares, org chart, and then you come here to ask us how you should do it? I'd recommend that you simplify everything. One project = one company. – Alain Raynaud 11 years ago

2 Answers


First, each project should have its own company. Trying to track money and value where a single company runs several projects is difficult at best, and should be avoided where possible.

Second, from a legal perspective, it is generally allowed (though you'll have to check the laws where you are located for specifics) to have a shareholder in a parent company own shares in a child company. Depending on the structure, however, questions may be raised if the reason for the separation of the two companies is unclear - check with a local lawyer and accountant for details.

Third, if I've read your post correctly, you have a concern that the company which issues the funding may not fund your projects, and therefore you want a voice in that decision-making process, preferably by being on their board. That does raise a conflict of interest, since you are the beneficiary of the decision, and therefore should be precluded from voting. As a proponent of a given project, however, when it is time to decide about whether or not to fund, you should be allowed to justify to the decision-makers why you think they ought to fund the project - but then step away and let them decide.

Fourth, regarding double-compensation concerns, depending on the structure, it may or may not be valid. A relatively simple way to handle that is to state in your agreement with the parent company that you will receive no benefit from any child company in which you are a principal shareholder directly. Using multiple classes of shares, this is actually fairly simple to accomplish.

In summary: I don't think you should have a seat on the board of the parent company because there exists the possibility for a conflict of interest when it comes to making decisions. However, you can be made a shareholder in the parent company and address the remaining concerns by not being a voting shareholder, and owning a class of shares that will not be paid a dividend from any earnings of a company that you otherwise own.

answered Mar 14 '12 at 23:48
4,692 points


Typically in a corporation the bylaws provide for potential conflicts of interest by acknowledging that conflicts are ok if disclosed before a vote. Something doesn't sound quite right to me. The Equity partners didn't know how to set up their own venture (inexperienced or just pretendiing?). They don't want you on the board and use the "conflict of interest" and "double compensation" ploys as justification. I'd look for other equity partners and go my own way.

answered Oct 19 '13 at 01:08
Jim Sr
1 point

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Co-Founder Incorporation Equity Legal