partnership, liability-insuranceIt’s been 3 months since I joined this startup. Upon joining, we became a team of 5 people, 3 co-founders, 2 employees. Our compensation was based on equity, and the promise of a salary upon launching our business.
Going forward 3 months, the other employee bailed, 1 co-founder decides to leave, and we’re left with 2 co-founders and myself. During the last meeting, I learnt that their initial promise of getting a salary upon launching is no longer feasible, so instead they decided to bump my equity, and also wanted to break to employee/employer relationship to a partnership instead. We currently have no investors, though the co-founders found a lead on 1. In the near future, we’re to dispose of the previous employer-employee agreement and sign a partnership instead.
Are there any inherent dangers I should be cautious of?
Well, yes. If you’re a partner, you usually fall under the management agreements, which basically means you get a management fee and dito rights. If the company goes bankrupt (I’d say there’s a good chance given what you describe), you’ll also be helt resposibly. If on the other hand it will take off or get sold, you’ll get money based on equity, which is better.
In most countries there are things like mismanagement and personal liability. Assuming there’s no fraud (etc), all of these have to do with the financial balance of the company. Basically you cannot take more than you can chew on.
Given that you ask this question means to me that you don’t understand these rules regarding legal responsibilities of companies. For this reason alone, I’d strongly recommend against taking the offer, or seriously reading up on the subject.
During the last meeting, I learnt that their initial promise of getting a salary upon launching is no longer feasible […]
Personally I think I’d cut my losses and simply walk away. I’ll be perfectly blunt about this: You need at least some money to make money - without it, the company is going nowhere.
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