Re-evaluating founders' equity
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When founders divide a startup's equity amongst themselves, are those numbers set in stone (ignoring future dilution)?
I ask this because my co-founders and I are pondering whether we should re-evaluate each founder's shares at regular intervals, based upon on how much work each person has put in since the last re-evaluation.
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2 Answers
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Kekito is right. You can get yourselves in trouble, but the starting point is that you can agree anything you like, as long as you all agree on it.
You should build some protections into this process. I could sketch some ideas, but without knowing exactly what you're doing, it would be useless. You need proper professional advice.
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Let's deal with the legal side first:
- With proper contracts in place, there are no problems in the company structure itself or in common shareholder's agreements clauses that would prevent you guys from selling shares to each other at a reasonable price.
- There might be tax problems later on. If the tax authorities see lots of sales or hand-over of shares, and these shares later on become very valuable, then the tax authorities might get very interested.
I would never do that. Because of loss aversion -- basically, I see it as rife with conflict, and highly likely to cause a nasty breakup among the founders. I think you should look at vesting instead -- see this US law centric article to get an idea of what it is and look at past posts too.
we should re-evaluate each founder's shares at regular intervals, based upon on how much work each person has put in
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Thanks for the link to the WalkerCorporateLaw.com page, Jesper. There's some gold in that. We're definitely going to have a vesting period. What we're trying to figure out is how to deal with the situation of one person needing to do significantly more or less work than was initially thought, and adjusting their shares to reflect that change. – A Fake Username 13 years ago
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