Dividing the Equity Between Founders

January 25th, 2016   |    By: Clarity Team

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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?

Alessandro Daliana, Leadership Coach and Consultant, answered:

Personally, I am a big fan of the consortium, or contractual joint venture, to get projects moving. In your case, the three co-founders write a contract setting out who is responsible for what work, who much they should be paid, estimate the hours, and so on, like any project. They nominate a lead, decide how to contribute any funds that are necessary, and anything else they may need. And, you conclude with a simple—or complex—way of converting all the resources allocated to the project into shares when it is time to create the legal entity. One of the biggest advantages of this approach is flexibility.

 

The contract can be adapted over time based on unforeseen events, like the inclusion of another person or persons. All of your time is focused on building the product/service instead of administrative tasks, like board meetings. And, you are not creating a legal entity until you actually have a productive asset that can be used in a business. Also, by putting off the legal entity you can easily adapt the contract to include a first round of external investors and their needs/requirements without having to undo a whole bunch of things, like the bylaws.

About Alessandro Daliana

Former Chairman, CEO, & CFO turned entrepreneur & advisor. One of the rare people who loves negotiating licensing deals. He has direct experience in information technology, bio-technology, FMCG, consumer electronics, para-pharmaceuticals, and transportation. Daliana has launched and exited 4 startups.


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