Is it possible for CEO to retain a majority of shares, but share a fair amount of profit with the team? Are there precedents?

Background: I am currently working in a medium-sized company (~50 employees) in a team of 7 members. Our team has grown to the size where we want to part ways from the mother company and form a start-up. Our team has been building this business up since from 2014 (I joined in 2016) and we have a considerable track record.

For the last few years, our current team lead (lets call him Garry) has been talking about forming a start-up, where he is the CEO, other long-running team member (Scotty) would be COO, and I would be CTO. I said to him already a year ago that I would not be fit for the role, since I would not be able to travel as much as he envisions for the role of CTO. But I still consider that I and Scotty have put considerable effort into building up this team and business (for example, I have fulfilled the role of the architect, making all of the technical decision for the dev team, etc.)

So, now we have come to the point where Garry has been talking about making an exit from the mother company. He estimates that after giving a part of the company away to the owner of the mother company and investors, there will be 40% of the company shares left for him and the team. He told us that he sees that he would take 30% of it and leave 10% to the team, which includes something like 2% to Scotty and 2% to me. He said that he wouldn’t see us as co-founders, etc.

This is in stark contrast with what he has been talking before (just a year ago he was talking with Scotty being COO and me being CTO and so on). But of course, we have never talked about percentages of shares before, so I can’t say that he broke a promise or something. Just it’s not what I would have expected.

I agree that he has done a lot for the team (created the longer-term vision, talked to investors, etc.), which I agree. But he completely ignores the fact that he would not be here without the team members. To me, a honest share would be him getting maximum 20% and the rest of the team at least 20%. When I tried to talk to him about it, he said that it is necessary for him to hold to a as large amount as possible, since:

Investors view it as a sign of danger if there are too many co-founders and the majority of the capital is in too many hands
He wants to keep the possibility to make decisions to himself so that he does not need to discuss things through with us
Even if we agree to let him make the decisions, he is afraid of situations where one of us sells our part too early and he loses power to make important decisions

I asked him if it is possible that somehow we will make a deal where he keeps the power to make decisions, but the team receives a fair share of the profit. He said that he does not know any variants of how to do this - if we receive a fair share of the shares and somehow contractually give him rights to make decisions, he will still lose that privilege when we sell our shares. He also said that he does not know precedents for this kind of deals.

So, I am coming here for advice - are there any precedents to situations like this? Is it possible to guarantee that he will keep the right to make decision, but the team will receive a fair share of the profit? First idea that came to my mind was to include a clause that whenever he will sell or otherwise monetize his shares (30%), 10% of the 30% (i.e., one third of his part) will be shared among the team. Would there be any legal loopholes in that pact? Are there precedents?

Shares Share Percentage

asked Apr 22 '20 at 10:05

technical_guy
1 point