startup-costs, founder, profit-sharingI am the CEO at a Tech Startup and I also put money in the company (taking it from my parents). There are 2 friends of mine also working with me. One of them is the CTO and the other one is Technical Architect. I have listed my brother and sister as directors of the Pvt. Ltd. company in India. We have been in operations since February but have started receiving money in April. I work the most and the home office is at my place itself and I bare all the expenses (taking it from my parents). I can anytime ask for my brother and sister for money who are listed as directors. The CTO and CTA work full time, day and night but only on Technology and not on weekends whereas I work on everything from Tech, Managing projects, Distributing expenses, emailing and talking to clients, drafting documents and agreements and all the other things.
Questions
Q1. Can a Tech company have a CTO and a Technical Architect both at the same time? Will it affect when we go for funding?
Q2. Who has the rights over income? And how much?
Q3. Should I first cover all the expenses from the revenues and then divide whatever is left (profit) between all of us?
Q4. The seed investors here are my parents. How do I pay them back? Should I also list them as directors?
Profit Sharing
After all expenses are paid or kept aside for the current month, the remaining profit will be divided as follows:
Q5. How feasible is this Profit sharing plan in long term? Should someone receive more or less than what is mentioned?
Q6. Should I also mention how much each member will be diluted if someone puts in big money?
Note: My previous question was put on hold for being too broad. I have many other questions that I will link this to. Thanks a lot in advance.
Q1. Can a Tech company have a CTO and a Technical Architect both at the same time? Will it affect when we go for funding?
There are no limits in regards of a company structure how many different similar positions you have, it comes down to the fact what needs to be done, and who can do it.
Q2. Who has the rights over income? And how much?
Usually everyone get’s their base salary, and profit sharing is done as set intervals (once a year for instance) When profit sharing, you take a base % aside for securities and basic operations coverage and with the management decide how big of a share goes out for payment. The payment is distributed based on everyones equity in the company.
If you have 3%, then you are entitled to 3% of what is being paid out.
Q3. Should I first cover all the expenses from the revenues and then divide whatever is left (profit) between all of us?
Usually when covering expenses with your own money, you put/invest money into the company and for that based on a decided evaluation you have the right for an equity increase (Dillutes others). See my answer to the previous question, that you should decide how much you need to cover expenses and set aside some money for covering operational costs. never pay out all of the profits.
Q4. The seed investors here are my parents. How do I pay them back? Should I also list them as directors?
Your parents as seed investors should receive an equity in the company and payouts from profits accordingly. In this case, you should create some sort of a convertible loan agreement, where at one point your parents input in converted into eqity based on a set/agreed evaluation. Mostly this is node when raising a seond round, and they get a discount on the purchase price.
Or you can just treat it as a loan and pay back with an interest, if you wish so.
Q5. How feasible is this Profit sharing plan in long term? Should someone receive more or less than what is mentioned?
Everyone should get a cut based on their equity.
Q6. Should I also mention how much each member will be diluted if someone puts in big money?
Ofcourse. And the dillution is also based on the equity everyone has.
For instance if raising money enough for selling 10% of equity, everyone in most general scenarios gives away 10% of their equity.
Hope this helps :)
Best,
Alari
All content is licensed under CC BY-SA 3.0.