startup-costs, profit-sharingI am Freelancing Software Developer .
Recently one Pvt Ltd company approached me to share business ideas and asked me to develop software .
They offering some share in the new startup business. They asked me to explore possibilities of having a profit share agreement with the Existing company for this new startup .
They are not keen to offer me share in the exiting company and they are offing shares ONLY in the new startup only .
They are not in favor to register NEW COMPANY to Run this new startup instead they will run this new start up as one of service from the existing company .
Is there any ways I can tie up with them ?
The dilemma you’re facing is not really new, to be honest. I can understand why they wouldn’t give you shares of the existing company, because you’ve done nothing for it. In other words, all of its revenue (hence the value of a share) is based on work done by people other than you. They want to limit your participation only to the new business, and that makes sense.
Put yourself in their shoes and look at it. If you own a business and are planning to start a new venture, would you give a share of your existing company to someone who contributed nothing to it? Of course not. That wouldn’t be wise for you.
It sounds like they plan to segregate the new business into its own wholly owned subsidiary and give you a stake in it, which is logical. That’s where all your value to the company is going, and it keeps things clean and simple. Let me explain.
If you are given a share of the whole company then its possible you would see no return on your share. Why? What if the subsidiary you’re working with is the only profitable one, and the losses of the other subsidiaries wipe out all of the profits so that there’s nothing to distribute to any of the shareholders? You would be better off to instead have a share of the subsidiary you’re working for, as long as you get some kind of agreement that your distribution of profits is not based on the parent company’s profitability. In other words, you get paid a share of the gross profit of the subsidiary you’re working with before it gets combined with revenues of the other subsidiaries.
I would strongly suggest that before you sign or even verbally agree to any kind of arrangement, get it in writing, take it to an attorney, and make sure it protects your interests. You need to ensure there are no clauses that allow the parent company to sell off your work product without also compensating you, because it isn’t unknown for a company to develop a product or service and decide it is more profitable to license it to others rather than produce or provide it themselves, and in such a case you could lose out unless you have that covered in the contract.
If the work you are doing can be patented, copyrighted, or trademarked, you have to make sure that they include you as a co-inventor or co-owner of the intellectual property rights, because if what you’re doing has any value, you must make sure you protect your right to a fair share of it.
This can be tricky, but not if you hire a smart attorney who has done this before. Don’t rely on this company’s attorneys to do it – their job is to protect the company’s best interests, not yours, no matter WHAT they tell you. Yes, it will cost you some money to do this, but it is money wellspent to ensure you don’t lose out in the long run.
I hope this helps.
Good luck!
All content is licensed under CC BY-SA 3.0.