Structuring equity for a key participant in our startup

[Jay Steven]

What is the name of your state (only U.S. law)? IL

We are developing a new company. Have not decided on LLC or Corp. My partner and I are funding and will provide some operational support. We have an individual who is willing to be our day-to-day worker, mainly to lead sales. This is a SaaS-based business. He will willing to work for equity plus a cut of all revenues.

We would like some advice on how to structure the "deal" with him. We are concerned in the case that he does not work out - either we are not satisfied or he is not satisfied. We are willing to provide him 15% of the equity, earned over time. If things do not work out in a year or so, how do we protect ourselves? I know there are many ways to structure this and would love to get your advice on what others have done in this situation.

Thanks, Jay

 

[quincy]

What is the name of your state (only U.S. law)? IL

We are developing a new company. Have not decided on LLC or Corp. My partner and I are funding and will provide some operational support. We have an individual who is willing to be our day-to-day worker, mainly to lead sales. This is a SaaS-based business. He will willing to work for equity plus a cut of all revenues.

We would like some advice on how to structure the "deal" with him. We are concerned in the case that he does not work out - either we are not satisfied or he is not satisfied. We are willing to provide him 15% of the equity, earned over time. If things do not work out in a year or so, how do we protect ourselves? I know there are many ways to structure this and would love to get your advice on what others have done in this situation.

Thanks, Jay

I am afraid you need more help than a forum can provide, Jay.

I suggest that you and your partner sit down with a business law professional in your area to go over all of the specifics of your proposed operation (where you are now, where you expect or hope to be in the future). You will want to have carefully drafted contracts drawn up that cover adequately all contingencies, between you and your partner (for example, to spell out what happens should the partnership dissolve) and for any employee or employees you eventually have working for you (for example, does equity make the most sense for your company in the long term?).

In other words, there is no easy way to advise you without a personal review of all facts - and we cannot do personal reviews here.

Good luck.