Being paid in equity. Can my poor credit rating negatively affect the business?


1

I'm a web developer, and I've been offered (in addition to cash) equity in the new business that will be based largely on the application I'm being hired to build.

As someone who has been scraping by as an independent for 5+ years, my personal credit rating is in the gutter.

Will adding me as an equity holder (my 25%, to his 75%) have a negative effect on the new business's ability to secure credit if/when necessary? (or have any other affects I haven't thought of?)

If so, what are some other options/arrangements I might explore to circumvent the bad credit issue?

LLC Equity Credit Rating

asked Jun 10 '12 at 11:47
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Jasonmklug
106 points

1 Answer


1

Normally ownership of shares is considered an asset unless company trading whilst insolvent in which case it is worth zilch if LCC. Your credit rating is actually a scorecard managed by a very small number of discrete firms that track your PAYMENT history, not your net worth. On the otherhand, some investors when doing a due dilligence might mark it as a risk factor that a director who has access to signing authority might be tempted to embezzle. Rather a moral question this one as how a character is judged is by how they treat OPM (other people's money). However, ownership can be alienated (sold to trust, held in escrow, etc) to create arms-length dealing ... what I've also seen is clauses against self-dealing or conflicts of interest within Articles of Incorporation, as well as strong audit committees. But as this appears a small firm, may not be necessary. If a LLC, this is completely different to a partnership where the liability for debts is usually joint and several (ie collectively and individual responsible for paying debts).

answered May 4 '13 at 16:09
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Drllau
501 points

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LLC Equity Credit Rating