Q: I’m planning to start a company with three colleagues. How should we split up the shares?
Aug 17 2005
Answered by: Philip Wilkinson Ask a question
The split should be whatever the four of you can agree on, but there are some factors to take into account. First, who is the leader? You are unlikely to be a team of equals. Usually when a company is started there is one person who is crucial to its success, who has the drive and vision and determination to make it succeed, who is the natural decision-maker.
If that is you, argue for yourself to have the biggest percentage of the shares. If not, what will happen when the going gets tough, is that you will start resenting that your pivotal role is not recognised by the share split and you are not getting the proper reward for your skill and ability. The danger will be that you decide to go off and start another business on your own. There may even be a case for arguing with this current plan, that this is your business and that the rest of the team should be content with a much smaller split while you should claim the lion’s share.
Of course, all these calculations can be upset, if the four of you are providing the funds for the business and putting in unequal proportions. In this case, there would be an argument that the shares should be split in the exact same proportions. However, it may be that one of the team, crucial to the success of the business, is unable to provide any finance. You will need to work out a way that person can be incentivised. Possibly, there could be some founder shares, a small number which you all get in equal proportion, with the rest of the shares being split along the funding ratios.
Don’t simply agree to other proposals from other team members to ensure that you start off amicably. It’s far better to have the arguments about share splits up front and out in the open. If they can’t be resolved it would be better not to go ahead. Simmering differences will emerge when the stresses and strains of trying to make a success of the business appear.
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