Informal equity agreements
1 comments
The difficulty I see here, if you're not incorporating officially, is that you are assigning equity on future actions that neither of you know what the value will be. What I mean by that is that say for instance he is given 60% equity with the idea in mind that he will do x amount of work. If three months down the road you think he's not doing x amount will you feel satisfied in giving this type of equity. I understand you do not want to be taken advantage of in this scenario as much of the benefit from a start up is gained in the equity but attempting to decide the equity decision so early on especially if neither of you is bringing something particularly unique and/or valuable to the equation is difficult. For that reason I agree with your partner in that you are probably better of waiting until later on to decide the equity split. As long as you have the general agreement that you are both in a partnership and are going to execute on whatever idea I believe the equity question will more or less work itself out as the work is completed.
I'm doing a startup and I feel we need to establish a basis for equity distribution before we get too deep into the project. My partner is hesitant to sign a formal agreement before we get a good sense of who's putting in the most work, as we're all still in school in different places in the world. Would it be possible to sign an agreement that would establish a basic range of equity: like no one partner can get less than X percentage until we are about to get funding and sign an official agreement?
He's insisting we wait, but perhaps if we get something in writing it would be something that could hold up in court. I trust my partners - I do - but I think it's wise to establish something from the very start.