Hey. How would 2 Co-Founders split equity if one brings capital and advisory and one brings sweat equity (Full time work)?
Any rewards/renumeration in a founder cofounder arrangement has to be linked to specific milestones and achievements which should also be staged over time. There is a lot a play for example they both may not get on or better still the one person may not pull their weight which make divorce tricky especially if one of them stays and makes the business a success and the other walked away with valuable equity which they didn't help to build
The simplest way to accomplish this is to create a virtual salary and give each person the equivalent in equity based on their contribution.
Lets say you allocate 200,000 shares (or units if it's a LLC), @ $1.00 per share.
If person A puts in $100,000, they get 100,000 shares.
If person B has a virtual salary for $100,000, after person B has contributed a year's worth of time (or whatever metrics you come up with), they get 100,000. In this case though, the shares should be prorated on a monthly or weekly basis.
If person A contributes $50,000, then they would be expected to put in another $50,000 worth of sweat equity.
I hope this makes sense.
Maybe the one with the capital just want to see how the returns look to calculate if the idea is a good investment. Maybe the one bringing the sweat equity would like a silent partner. In this case the sweat equity partner just need to present a good pitch!
I would like to add @ Alex Akinjayeju:
If I can find a co-founder to take the first initiative to invest in my company we both would have to agree to whatever terms we want in a "Partnership Agreement." This eliminate any kind of thoughts that one person could walk away with more than the other. Later one founder can buy another founder out, but that will have to be in the agreement. At that point it won't really matter how much money they initially brought to the table because they provided the funds that you couldn't get anywhere else to get your business started! You will have paid them and you could send them on their jolly way!!!!!
I don't know about anyone else but the could thing about being able to bring sweat equity to the table as a co-founder is that you have the skills and knowledge that you can apply over and over.
Nobody can ever take that away!!!!!