4 ms·

I take a couple of issues with that: -I wouldn't offer this person 30% if I didn't need them to get the company working. I sold them 30% under the premise /I

I take a couple of issues with that: -I wouldn't offer this person 30% if I didn't need them to get the company working. I sold them 30% under the premise /I will have 100% of nothing without her involvement/. To the extent that we're arguing about cutting up the rewards, presumably she brought to the table what I believed I needed her for. So I got my "payment" from her, and now I'm cutting her out of her end. Presumably if I didn't think she was critical to the company's survival, I wouldn't be paying her 30% of the company. So whatever she provided, it was clearly /what I needed/ at the time. I presumably wasn't giving her 30% as a one-time salary to a non-critical employee. -It sure seems like employees have their vesting schedules be dependent on their continued employment, which is contingent on their continued work quality. Is there a reason this isn't valid for co-founders?

deleted 7y ago
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zaroth 7y ago
For tax purposes, you don't want Founder's shares to vest. It's important they are straight shares, for example, to be treated as QSBS and start the 5-year timer on Day 1 so that the first $10 million in equity is tax free if you make a sale. You can instead add a buy-back provision, which expires in tranches over time (basically this is re-inventing vesting but in reverse). One real problem I've actually had with such a buyback provision is when the early employee leaves, according to the agreement you are entitled to buy-back 80% of their shares, but then they refuse to cash the buyback check or sign a document agreeing that the shares have indeed been bought back. Now you're back again in this legal limbo. So next time I do a buy-back provision on Founder's shares, I'm going to pre-fund the whole buyback, and then if they leave, the departing employee will owe the company a partial refund of the buy-back. Since it's Founder's shares at par value, if they refuse to pay it then it's by far the lesser of 2 evils. E.g. Co-Founder pays $100 par value for shares. Company pays Founder $100 to pre-fund the buyback. Co-Founder leaves after 6 months and Company buys back 8,750 of 10,000 shares. Co-Founder technically owes the company $12.50.
nicwolff 7y ago
You didn't "offer" them 30%, you started the company with them and when it came time to execute a partnership agreement – which has to be done early to avoid accidental general partnership – that's what was agreed on, based on shared expectations of future contributions. Now they have decided to prioritize other projects – but there is no way under US law to adjust their ownership without their agreement. It does seem like a vesting schedule for the founders would be better – but defining the terms of participation, and enforcing them, is difficult. Still, the performing partners would at least have grounds to sue, and that threat might be effective.

deleted 7y ago

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zaroth 7y ago

For tax purposes, you don't want Founder's shares to vest. It's important they are straight shares, for example, to be treated as QSBS and start the 5-year timer on Day 1 so that the first $10 million in equity is tax free if you make a sale. You can instead add a buy-back provision, which expires in tranches over time (basically this is re-inventing vesting but in reverse). One real problem I've actually had with such a buyback provision is when the early employee leaves, according to the agreement you are entitled to buy-back 80% of their shares, but then they refuse to cash the buyback check or sign a document agreeing that the shares have indeed been bought back. Now you're back again in this legal limbo. So next time I do a buy-back provision on Founder's shares, I'm going to pre-fund the whole buyback, and then if they leave, the departing employee will owe the company a partial refund of the buy-back. Since it's Founder's shares at par value, if they refuse to pay it then it's by far the lesser of 2 evils. E.g. Co-Founder pays $100 par value for shares. Company pays Founder $100 to pre-fund the buyback. Co-Founder leaves after 6 months and Company buys back 8,750 of 10,000 shares. Co-Founder technically owes the company $12.50.

nicwolff 7y ago

You didn't "offer" them 30%, you started the company with them and when it came time to execute a partnership agreement – which has to be done early to avoid accidental general partnership – that's what was agreed on, based on shared expectations of future contributions. Now they have decided to prioritize other projects – but there is no way under US law to adjust their ownership without their agreement. It does seem like a vesting schedule for the founders would be better – but defining the terms of participation, and enforcing them, is difficult. Still, the performing partners would at least have grounds to sue, and that threat might be effective.