Getting it right from the start - giving shares in exchange for work

[hollyyetmore]

Hi everyone,

I'm at the beginning of an exciting new project (aren't we all?!) but I'm a bit cautious about how to go about it.

It's a digital project and will take a fair bit of design and development work. I have a previous colleague (now a mate) who is interested in being involved with the development stuff and a possible contact who wants to do the design stuff.

Here's the question... I'm the one who will be running this business, paying the outlays etc. I don't want to give up my rights to it in anyway but the developer (and possibly the designer) is interested in being involved long-term instead of receiving a flat fee for the work. So is offering a share of the profits a crazy idea and if we do go down this route, what's a reasonable percentage and has anyone followed this model at all?

Any pitfalls?

I have to apologise if this is really garbled, I'm so damn tired!

Holly

[moneyman]

1)dont give shares to anyone for one off work. They are a good incentive for a long term relationship. If your company depends on a website, its not a bad idea.

2) have a good shareholders agreement stating everyones rights to buyback shares if you want to get rid of them or to stop someone selling theirs to another party without offering them to you first..etc called dragalong and tagalong rights.

3) make sure you have a written agreement on who does what for the shares treat it as hard cash.

4)you are offering a share of the company not the profit. you could blow all the profit on your own salary and leave the other guy with %20 of nothing.

[RichardJohn]

I can only speak for web work, but I get at least 1 contact a week who wants me to work in exchange for a share in the business.

I'm not an investor - at this point I have no intention investing in others' businesses, which is basically what they're asking me to do.

I did get one interesting one last week wanting this, and t sounded like an interesting idea. I replied asking if I could see a copy of the business plan and I never got a response.

[hollyyetmore]

Thanks for your replies. I should probably clarify a bit - we're all keen to work together long term and for the guys to have some stake in the business (they'd rather this than a one-off fee) so it's not that I've offered them a stake to try and get out of paying!

H

[adandy]

I agree with moneyman, if you do decided down this road make sure you have a water tight shareholders agreement.

Even go so far as to include who will value your company if you all fall out and who'll pay for it.

Also do a bit of dragons den on yourself and make sure your not giving away a nice slice of something big later on.

good luck

[irishnutter]

i wouldnt dream of giving a slice of my business to anyone at all regardless of how much investment or help i needed.

[bluecube]

How much input will they have after the initial development??

What are their long term goals are they the same as yours?

These are two questions that I would ask myself, as the worst scenario to be left in is your "mate" owns a part of your business but is not willing to put in the effort/time.

Your then left with a dilema as to what to do. Do you take the hard line and end up[ loosing a friend??

Just things to consider, as I say, but if you do decide to go into business with him make sure yyou have a partnership agreement outlining what level of (ongoing) input is required from both parties.

Hope this helps

Regards

Nathan