business-planI’m starting a business with an individual who is able to provide money upfront however down the road there’s going to be potential work will be needed to put into the business in order to continue to maintain the business as a functioning commodity how does one go about equally dividing and how would you split that I need to physically maintain the facility and he is not present to do so. Should I get payed for the extra work provided in order to keep things equal?
I think the best thing to consider here is what you get out of the current input between your partnership. Regardless of the business you end up opening, I think it’s important to note that if there is only a monetary down payment, and less hope of future input from your partner, your equity should definitely be weighted, unless it is a high enough amount that it will get your company running.
For example, if he provides $10k, and your business plan says you can get to point X on Day Y, Is the return on that $10k worth more to the company – speaking revenue here – than whatever it is you are contributing?
For example, if he’s providing half a million dollars to hire three full time employees for 6 months paying competitive wages, and you’re simply a fourth employee, it’s hard to justify getting more than 20-25% on your end. But if he’s putting up $10k-$50k to just get a couple contractors, while you work your sweat equity in over a year for a low wage, you should be reaching for 70-80%, if not more. It really does depend on the business. In the end, you want to reverse engineer your return on equity.
Therefore the equity split should probably be directly proportional to that division of real-return on investment, be it in finances or work input.
Everything needs to be agreed upfront and the best way for you to get paid for your work is to allow for the company to issue new shares by issuing stock options that can only be bought by active employees. You can set certain revenue targets and when those targets are met, options can be issued to you as an active employee and not to the guy that made an upfront investment. You need to specify how much options can be issued, the discount, and time needed for you to exercise those options.
Your partner may not be against this idea either because it keeps you motivated and while he will get diluted, he will still earn a return on his investment.
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