How should I structure my web start up considering one of my new partners is in Sweden?

I've started a website that has gained significant popularity. While we don't make any money yet I now require the help of another person. The individual that I have brought on lives in Sweden. I want to put something formal in place so that he is accounted for in the event that we do start producing revenue. Ideally I would like to give him a percentage the entity (whatever that end up being).

What is the best, most inexpensive way to make sure my new partner has peace-of-mind I won't take advantage of him? Keeping in mind that this person is lives abroad.

You should decide whether you think of this person as a partner, or as someone you would like to hire. My advice would be that you should think of the value of the service provided by the Helper. You could make a deal in which you give the person a nominal payment now, and a percentage of revenues not to exceed this identified value, for the defined work he will perform within a certain time period. If you think of the Helper as a partner and insist on offering a portion of the entity, that understanding could be addressed in a simple contractual agreement, which would not require the trouble of setting up the entity or working out the international aspects before any revenue is coming in.

However, be careful how you structure that agreement. There can be significant tax implications of giving away shares, or even promises of shares. This can be addressed by thoughtfully wording the agreement, rather than simply saying "you get __ %". The agreement doesn't have to be long, but it should be careful. You might consider agreeing that upon reaching certain goals, Helper will get equity interest equal to _ %, subject to tax consequences, to be formally structured in a manner acceptable to you.

Having dealt with a similar issue with owners in both US and scandinavia, we created a member-managed LLC in the US, and specified percentages in the operating agreement. Your Swedish colleague won't get much of sense of protections in terms of Swedish jurisdiction, but if you're at that point where the ownership is a legitimate way to describe the contribution, then that's one way to do it.

You could just write an agreement about any future future revenue or equity of the website, sign it in front of a notary and give one authenticated copy it to him. The fact that he lives in Sweden/is Swedish doesn't change the binding value of such an act, and he could later enforce it in an American court if necessary.

If the problem is that he can't be there when you sign the contract to be sure that nothing funny happens, you could simply allow him to choose and get in contact with the notary himself beforehand.

You could use a service like Foundrs.com which provides 'virtual equity' and partnership agreements. If this gives your friend the required "peace of mind", then it's probably the most inexpensive solution.

But, given that a couple of guys are already investing real time into this, I would say it's time to incorporate. Opinions vary on this, but I like to incorporate early (for the liability shield aspect), and because if you're already investing time (which is more precious than gold).

If you choose to incorporate, then it's business as usual. Incorporate the startup where it best serves the startup's needs. Your Swedish friend just gets regular (US) stocks & vesting schedules. There can be all sorts of tax complications in this, especially as Sweden which is one of the highest-tax countries on Earth, but that should be your Swedish friends issue.

Be sure to research the "Incorporation" tag and the importance of stock vesting first.