Questions

We are 3 Co-Founders in Ideation phase of our SAAS product. How do we split equity fairly? When do we incorporate the company: Now or later?

3answers

Unless you need to be incorporated to complete trial sales, market fit testing...don't do it. Wait until you can afford the couple thousand dollars it will cost you and or until you get an investor if you will go for one.

a C corporation is most likely your best bet.

Fairly is all on perspective. The original ideator shouldn't leverage that fact to get more. Equity should be based on time involved, possibility of the individual leaving, value added in the long term picture... once you get employees how critical will this position be? how critical is that value now? Whatever way you split, leave about 10-30% open for future partners or investors or negotiations of any kind.


Answered 6 years ago

You incorporate before your first sale! Depending on your state you can incorporate yourself for a few hundred dollars (CA for example only requires a one page declaration and filing fee of $145, first years tax to the state of $800 is waived).

You do this for liability reasons.

Secondly equity should be split based on contribution. If you plan to take on capital partners you will all be diluted at that time.

This a complex question with many open ended issues. I advise speaking with someone in detail rather than making your decisions based on a few replies on this thread.

Best of luck
Damien


Answered 6 years ago

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