How to split ownership fairly when founders put different amount of work into the company?


4

So I read this question on how to split a start ownership fairly. Forming a new software startup, how do I allocate ownership fairly? There the answer says that we should split the ownsership 50%-50% beween two founders so as to avoid endless arguments and the company failing. However, in my case the problem is that I'm starting a company with a person not totally voluntarily. In addition, I know that my "co-founder" likes to takes things easy, not stretch himself too much, leave everything to the last minute and generally he doesn't take our project as seriously as I do. I'm not saying he slacks, it's just he doesn't put in the extra overtime needed to bootstrap a company.

What I envisage happening is that by the time the company starts generating profit, I will have put in way more work into it than he has. Is it still recommended to split the ownership 50%-50% in the early stages? I don't want to wait too long, because once the money starts coming in, I imagine it will be extremely hard to negotiate the ownership. I've heard about vesting but I don't know if it is applicable here, because he most likely will stick around the company, it's just he won't be working that hard on it as he's got other stuff to do.

Co-Founder

asked Nov 13 '11 at 06:30
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Siamii
195 points

4 Answers


1

Founders stock typically does not vest but options do. You could weigh the founders stock more towards you and make it up to him in options. That way, it's skewed more towards performance.

It sounds like you will "run" the company, so you might have an argument that you should get more of the founders stock because you will do more.

Ultimately, it's up the two of you to work out a deal.

answered Nov 13 '11 at 09:07
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Jarie Bolander
11,421 points
  • is it recommended to split the ownership as soon as possible or should we wait and see how things play out? – Siamii 8 years ago
  • @bizso09: That's up to you guys. What you can do is have a founders agreement between the two of you that you will split the founders stock when it makes sense to form a company. Typically, you want to wait until you know you have something and then form it. – Jarie Bolander 8 years ago

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What type of business organization is it going to be? I know that in the case of LLC’s you can set the company up as either a member-managed or manager-managed LLC, which deals with what member or members will be responsible for day to day operations. Also, in the Operating Agreement you can override State defaults and stipulate your own allocation rules. Check out NOLO’s site for some details regarding structuring LLC’s and Corps.

answered Nov 13 '11 at 09:24
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Carmen
16 points

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Value the business then value the time of the people at market rate. Then have people sacrifice salary for stock. In this way you can vary ownership over time based on what you collectively agree your worth.

answered Nov 13 '11 at 11:50
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Jon Slinn
16 points

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I've been in the situation that you describe. It was hard and to be honest, it didn't work out. We had to part at some point and it was painful because half the product was ready. But I put a lot more time and energy in the project than the other person did and it didn't seem fair to have a 50 / 50 split.

What you could do is set milestones in terms of deadlines and areas of responsibilities. If some of such milestones are not met, more equity is moved towards the other founder. Of course, this needs to be set up using some flexible vehicle, like options. For example, you can say that 5% of options vest for a co-founder if he/she completes a particular area by a certain date.

And I wouldn't wait too long because it may be too late. I would lay out the rules in the very beginning so that both co-founders have the same expectations.

answered Nov 14 '11 at 08:34
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Vasiliy
323 points

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