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Determining co-founder equity in startups

On Behalf of | Feb 23, 2015 | Business Formation & Planning |

Arriving at a fair equity split for co-founders of a startup company in Ohio can be difficult, but considering different factors could help. Perhaps the most important factor is what positions the partners are going to fill in the new company. A CEO has more responsibilities than a consultant or other non-key executives, so that person should have a greater equity interest in the company.

There are other important factors, such as how much a partner has already contributed to the startup company. This may include contributions of financial capital, promoting growth in the startup or mentoring. That person should ideally be rewarded with additional equity. So should the pivotal contributions of the partner who came up with the original idea for the startup. If one partner gave up a high position, large salary and guaranteed pension to work on this startup, this arguably deserves to be recognized with additional equity over a partner who was unemployed.

In order to attract employees, they may need to be offered some equity to risk employment with a startup. That would give them a stake in the company but could also affect how much equity each partner receives.

A lawyer could help a company with issues concerning business startup, including ownership, investors, entity formation, licensing and regulatory compliance. To determine the model of business the startup should be, a lawyer could clarify differences among types of business models like limited partnerships and multi-state corporations. If the company makes it big, a lawyer could help with a buyout offer.


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