How to remain control of your company while issuing equity to cofounders and investors?


1

I have two other cofounders for my startup and I'm trying to figure out the equity split situation. My question revolves more around if I give out too much equity, how can I remain in control as the CEO? I currently have 51% and 20% each for the other cofounders. The remaining 9% is for the pool. I want to be fair and give them more, but would still like to retain control. Are there separate agreements people use to indicate that power will still remain with the CEO and will not be affected by equity split? Any suggestions?

Equity CEO

asked Jul 5 '13 at 11:03
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User26898
6 points
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3 Answers


1

Equity and control seem much more important at starting time than they will be in the long run. Giving your co-founders more and having a generous "pool" will be much better for the company than you maintaining "control". Surely your co-founders share some of your vision so you shouldn't be predicting any fights that you think you would need control for just yet. It's better to give up your big piece of a small pie than never have a big pie. And if you'll be CEO you're going to have managerial control anyway. If your company is your "baby" than it's very difficult to let go now but you'll thank yourself later when your co-founders work harder and you have more flexibility come investment time.

Good luck!

answered Jul 5 '13 at 18:26
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Jason
41 points
  • Exactly and that's why I wanted to re-evaluate our current situation. Thank you for the input! – User26898 7 years ago

1

To answer on the premise of your question: Some countries permit voting and non-voting shares, which can be used to give a subset of owners formal power while denying the same to others. You didn't state which country you're in, but a quick googling should tell you whether your country permits this or not.

But more importantly: You're going at this all wrong. That you even talk of this as "your startup" and "I [want] to remain in control" marks you as an amateur.

  • Institutional investors (VCs) will not invest in your startup, because you're putting your ego ahead of growth.
  • If the going gets tough, and your two cofounders figure out that they are second-class citizens in "your startup", then they might be likely to leave.

You ought to only have ""control"" over your startup in so far as that you have the better ideas about what to do; how to grow; where to find profitability.

answered Jul 5 '13 at 19:46
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Jesper Mortensen
15,292 points

0

Do you have a shareholders' agreement or operating agreement (if an LLC)? If so, you can specify that certain actions can be taken only with your approval (in your capacity as a board member or shareholder). These are called "protective provisions" and they can range from the basics such as issuing more equity and modifying the company's governing documents to the trivial such as signing any agreement in an amount over $X.

Protective provisions can apply regardless of how much equity you own. However, under the law of whatever jurisdiction you were formed in, holders of a majority of the equity may be able to outvote you in ways specified by that law.

answered Jul 8 '13 at 09:04
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User6492
1,747 points

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Equity CEO