Equity: Dividing it Up Amongst Founders

In Partnerships by Don KochersbergerLeave a Comment

Dividing Equity

Business owners and diving equity.

You and your partners have the idea, product and resources to finally start the business you always wanted. This is a very exciting time for all of you and there is a lot to do. You have operating agreements, ownership agreements and a lot of details to finalize.

One of the most important things to consider about starting a new business with other people is equity. Equity will dictate a lot about how the business is run and how much say each person will get in the decision-making process.

How Equity is Determined and Divided

There is no clear-cut formula to help you determine how to divide equity between the founders. Different factors influence what will work best for you and the other founders. When dividing equity, it is important to consider:

    • What everyone’s role was from the start. You may want to start by thinking about how much value each person’s contribution was worth.
    • Who is going to be running the business and how involved everyone will be. The more involved you will be with the day-to-day operations, the more important equity may be.
    • Where you will be receiving the initial funding to start the business. The amount that each person has contributed should be considered in relation to how much “sweat equity” each has put in.

Ultimately, you and the other founders will decide how this is best split up. Being open and honest from the start is the best way to avoid any dispute later on.

What We can Help You With

Putting the legal documents in order that will solidify how much equity each of the founders will receive is best done by a business lawyer. Our team of business lawyers at Business Law Southwest can help you:

    • Open the important discussion about who is entitled to what in the business.
    • Draft up legally binding documents that will protect everyone’s interests in the company.
    • Consider all of the details that need to be included put in your agreements to help you avoid dispute later on.
    • Determine an exit plan, in case you or any of the other founders want to leave the company later on, or sell shares.

Having these important discussions at the start can help to avoid any confusion, and possibly costly litigation, later on. Contact us at Business Law Southwest today!

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