Question: Startup Equity Distribution

I am planning to startup in a few months and I need some advice.

The startup cost should not exceed $10,000 and I will share equity with a partner. How many shares should we authorize? How much should each share be worth? Should we distribute all the shares or leave some of them for future use? I was thinking about assigning the 30% of total shares to each partner (60% total) and leave the remaining 40% in the business. What do you think about this strategy?

Any suggestion?

Nelson

You're not giving us enough information. Are you expecting additional investors in the future? Will you be granting stock options to employees? Do you anticipate having to put in additional capital in the future?

But, frankly, the actual number of shares is not really the biggest thing you have to worry about -- you could give each of you 10 or 100 or 1000, and it really wouldn't make much of a difference right now.* If you need to, you can always do a stock split or authorize more stock later. For some reason, people like multiples of 1,000.

The bigger questions are: (a) What is everybody doing in exchange for their shares? and (b) How does the company get control of what they're putting in? If it's cash, then that's easy -- it goes into a bank account. If it's IP (like existing software), then they should assign it over to the company. If it's future services, then there needs to be an agreement in place about what those services are AND (since they're future services), some provision for taking stock back, typically through vesting, if the services aren't finished.

(**But, watch out for par value issues if you're in Delaware.)