An Innovative Approach to Splitting Equity

By Nina Kaufman, Esq.

When two people start a business together, it’s tempting to say, simply, that they should be 50/50 partners.  But, as Seth Godin points out in a recent post, what’s fair today may not be fair 12 or 18 months from now.

Godin offered the following suggestion (in response to a specific example):

“Today, right now, your contribution is worth 5% of the company and my creation of the company is worth 5%. The other 90% is based on what each of us does over the next 18 months. Here’s a list of what has to get done, and what we agree it’s worth…”

And then make a list. Stuff like commenting and updating and supporting the code. Stuff like closing sales and hiring people and raising money…

The only curlicue, then, becomes how to phrase that in your partnership agreement, as they tend to be drafted from a “moment-in-time” perspective.  Will the shifting sands of fair ownership (this year, you’re 50/50; next year, you’re 75/25) have tax consequences?  If you agree in the document to re-evaluate your contributions each year . . . what if you miss a year?  What if you can’t agree?

Like what you read? Watch this short video to learn who we serve best.