Startup organization before incorporation
I'm beginning a startup at my school. Right now its just me doing all the work, but i am gathering a team that will ideally be my co-founders. I wont be incorporating any time soon, but i will be working with at least 1 or 2 other people on a business plan for a competition here at school. Regardless of our success in the competition, it is a business i plan on following through with. As such, how do you think i should go about talking about equity, the company, division, and IP?
If you guys need more specifics about my project let me know in the comments and ill be happy to edit and include them.
Thanks
Co-Founder Equity Founders Intellectual Property
4 Answers
Here are things I can think of -
- Discuss the equity allocation as early as possible. Once you get started without discussing how to split, and if every one develops different expectations, it can become very unpleasant later on.
- Always have a vesting schedule. I recommend one with a cliff - so if any one leaves before x months, then they leave with no equity.
- Get a good attorney when you are ready to incorporate - some one who has incorporated companies in your industry before. They will know all the standard paperwork required. For example, regarding the IP, you can sign a PIIA (Proprietary Information and Inventions Agreement) that will assign the IP to the company. (Fine print: I am not a lawyer, and don't ever take legal advice from a non-lawyer :) )
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Haha thanks for the advice. Ill definitely get on this. Its an issue i cannot afford to let drag on... – Eric Amzalag 15 years ago
Absolutely - you need to at least talk about it now, and draft up a founders' agreement (I wrote an article about this on my site) before any mis-understandings occur between you and the others involved in the project. Talk about what each person is expected to contribute, and what each person will get for that. There is more information in the article I linked to.
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You should probably also state it is from your own site... – Tim J 15 years ago
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It is from my site. So? – Elie 15 years ago
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You made it appear as if you were recommending a third-part as a neutral person. Given the fact that you have ads running there (never mind just being frank and honest) I would prefer to know that up front. One could make the claim you are just linking for traffic, though in this case it appears relevant - you should err on the side of full disclosure. Just my opinion. – Tim J 15 years ago
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Fair enough. I'll edit the post accordingly. – Elie 15 years ago
I agree that it makes sense to talk about it now, but I would suggest you don't try to come to any firm agreements until it's more clear what role everyone will have at the company.
I made the mistake of trying to start a company with some friends and we all decided to split the ownership evenly. When it became clear that two of us were contributing and one wasn't, it was kind of unpleasant changing our agreement even though we never signed anything.
I'm not at all saying you should put off talking about it, just make it clear that the discussion is based on expectations you all have, and those expectations may or may not seem realistic a month or two from now. Any assumptions you make now will almost certainly need revising.
You should take a look at this answer to get a better idea about what would go in a founders agreement. Tyler makes an excellent point about contributions. I would formulate some sort of plan and see who contributes. Then do a founders agreement with the people who actually made a contribution.
