What type of contract is needed to add a new equity-owner to an already established company?


3
I'm in a situation where I'll be joining a startup that has already created their company entity and been in existence for a couple years. It's a sweat-equity deal, so I will not receive a salary, but I will be a minority equity owner. I've created company partnership agreements in the past, but that seems different as we were also creating the company at the same time. Is there a standard contract for a situation where you want to add an equity-owning, non-salaried, co-founder after the company has already formed?

Contract Startups

asked Mar 25 '14 at 15:46
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Chad Hutchins
16 points
  • Are the current co-founders on a vesting schedule? – Nishank Khanna 6 years ago

2 Answers


3

It will depend a lot on how the equity is currently structured.

Here is the way you should structure it between yourself and the other co-founders:

  • All co-founders will be on a 4-year vesting schedule. Presuming the existing founders already did it this right way when starting, they're going to be currently 50% vested.
  • Depending on the answer to my question below, you'll either simply join on a vesting schedule for pre-agreed upon equity, or all co-founders will need new agreements that account for their dilution.

Question for you:

Is the equity they're giving you diluting their equity structure or coming out of a remaining pool? For example: if they started with 40%/40% each and set aside 20% for employees, advisors or another co-founder later.

answered Mar 25 '14 at 16:25
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Leslie Parker
80 points

3

Here's a generic document on Docracy that you can customize for you needs:

Cofounder Terms (Exhibit A to Founders' Agreement)

This term sheet is for use in connection with the Founders' Agreement Template. The founders can agree in principle on what the basic business terms of their relationship will be, should the project prove successful. But postpone the details of a definitive agreement until it becomes necessary. If that never happens, then this term sheet will become moot. All of these terms are subject to negotiation with other parties if the company admits new founders, or raises outside capital. But having the terms outlined in advance will smooth the path of future discussion.
answered Mar 25 '14 at 17:42
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Bruce Schwartz
767 points

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Contract Startups