Company formation · Early Stage Company Development

Seeking for advice on how to divide shares in startups.

Pranav Mittal Product developer

August 26th, 2019

which type of company is suitable for 2 partners. and how they can share financials between them

Vijaykumar Nair Co-founder and Head of operations

August 26th, 2019

Dear Pranav, Thanks for your inquiry. I would suggest a Limited liability partnership. This is a good type of company formation. The sharing can be fixed by you as per the ratio of investment done by each of the partners. This also gives the benefit of taxation that the company is not taxed, the partners will be taxed as an individual.

Natalya A Meyer Legal adviser, business consultant and project manager.

August 27th, 2019

Pranav,


I wouldn't suggest anything blanket-type - if you want to launch a successful business, you need to encounter all the peculiarities. That said, I would recommend a good lawyer and then a cpa... or myself:) A general advice will be to form LLC to shield you from extra liabilities.


Good luck,

Natalya

Edward de Jong Software designer and developer, programming language designer

Last updated on September 17th, 2019

Firstly you have to consider the longer term trajectory of your firm. If you are going to be raising capital from investors, you have to imagine multiple rounds of financing, and how the pie is going to be adjusted each time. Many a founder in Silicon Valley is shocked to find out that after five years when the company is going gangbusters they have been shown the door, and their stock position is small after one too many "trips to the well" as they call it. The reason VC's are billionaires and the founders are usually not, is because founders are notorious for underestimating how much money they need, and how long it will take to get off the runway.


I suggest you use a contractor to do the bookkeeping, and have you both get the same reports, so that you have confidence that things are equal.


The success of a partnership boils down ultimately to a measurement of integrity. Without completely honest people, partnerships fail, because one will be tempted to screw the other guy. See the movie "war dogs" for an example, or watch "social network" to see a recreation of how zuckerberg screwed people left and right. When a duo complements each other, and is completely trustworthy, you see the biggest successes of all (Walt & Roy Disney, Hewlett-Packard). Not many people are aware of how instrumental Roy Disney was to the success of the Walt Disney company. Walt had a fantastic imagination, envisioning expensive projects that were decades ahead of anyone else, and Roy did all the money raising and money minding, freeing up Walt to pump out great stuff. If Walt had to count paper clips, he would have never been able to accomplish what he did. In the case of Disney there was a creative partner, and then a financial/salesman partner. I would have a 3rd person you trust who knows both of you, and ask them if you two, when stranded in a rowboat and getting hungry, wouldn't try to eat each other... ;->


Partnerships don't work well most of the time because integrity is not an abundant quantity on earth; like gold it occurs in small pockets. Every single person has a pain threshold above which they will lie, cheat, steal to survive, so the question is not do you have a limit, but how low is your partner (and your own) integrity level. If they are stealing sugar packets from a restaurant, you know the answer right there.


So a fully complementary partnership is a rocket ship to the moon, but only if the integrity of the two is like a rock. Not many people are that trustworthy. You start to get make big money, and soon the sales guy thinks that he is more important because all you do is occasionally invent something, the power dynamics shift, and then the creative guys are in a dingy office and the salesmen are bleeding the company by putting their expensive massages on the company tab. If you travel the world and do business around the world like I have, you will discover the only thing that determines the wealth of a nation is their level of integrity; high integrity equals a rich country, and low integrity regardless of resources means poverty.

Arya Pal Business Analyst and professional accountant

August 26th, 2019

Private Limited company. Shares will be held by them.

Further they can take monthly salary and sitting charges from the company in ratio of their partnership.

Andreas Éri Fullstack & Mobile Developer

Last updated on August 26th, 2019

Two years ago I read an interesting book about 'dynamic' equity split. It's called 'Slicing pie'. It covers quite a lot of use cases like invested workload, calculation of intellectual property etc. For me it was a good starting point.

Edward Kidney Founder and CEO

August 26th, 2019

The method of slicing pie is the best method I have found for dividing equity in a start. Imbaaicslly irs based on contribution.

Muhammad Adnan Salat Consultant

August 26th, 2019

I would suggest as AOP as per the financial contributions or working terms , which do usually vary case to case. please share little more inside of terms decided to carry out the tasks.