Tell me more ×
Answers OnStartups is a question and answer site for entrepreneurs looking to start or run a new business. It's 100% free, no registration required.
up vote 2 down vote favorite

I've been working on several web applications of my own. For each web app I have different co-founders and I own more than 70% of each app. I decided to incorporate a company (in BC, Canada) for tax and liability benefits.

How can I have a company with several products (web apps) that have independent co-founders? Is this even possible or should I establish separate companies for each application?

Edit: To clarify, no actual legal entities exist yet. By co-founder I meant co-creator. So far I only have verbal agreements with them.

share|improve this question

3 Answers

up vote 1 down vote accepted

You definitely want to talk to an attorney (I'm not one). But here are my thoughts.

My answer is based on the assumption that you don't have any actual legal entities yet and that when you say "co-founder" you mean a "co-creator" of each of the apps. And that by "own more than 70%" you mean that you contributed more than 70% of the effort to create the application.

The first thing you need to figure out is what is your goal. If you are just trying to create a legal entity to wrap around your products and the ownership, then a single company is probably sufficient if you can figure out a way to fairly value the input that all of your co-creators have put in.

There may be legal obligations in terms of ownership you have to each of these co-creators as well. Do you have any legal agreements with them at all? Did you pay any of them for any of the work they did? Definitely find an attorney who specializes in business law and walk through this part of the issue. It will cost you a little bit of money, but it's well worth it to make sure you do things right up front.

If you want to start generating revenue or getting investment to create a business from these applications, then you may want to consider different companies based on the market space that each app (or group of apps) addresses. This might make it easier and cleaner to get funding for one particular application (or small group of apps) without "muddying the waters".

In other words, say that you have app A that is doing well, but app B is in a different market or isn't doing so well. If you want to get investment to pursue the business of app A, how will you justify the value of app B to your investors? Your investors may also want to ensure that their money is ONLY invested in app A. In this case, it's to your benefit to have separate companies.

I'm curious what you will end up doing. Let me know.

share|improve this answer
Thank you, this is very helpful. There is a possibility of looking for an investment for each application independently, so having separate legal entities makes sense. I will talk to an attorney and let you know the outcome. Thanks. – Boolean Oct 14 '09 at 5:58
up vote 0 down vote

The word "co-founder" is a little confusing... but I take it to mean that there's really no upfront risk or cost, and they've just agreed to work on the projects on a sweat-equity basis.

It would probably be easiest for you to handle this contractually. You can setup agreements between the other people that give them IP rights, a percent of gross or net revenue tied to the project, etc.

They may not go for this (I personally wouldn't), and in that case, you'll need to setup separate companies so that they'll have actual ownership.

share|improve this answer
Your assumption was correct. My partners wouldn't go for contracting. Thanks for the help. – Boolean Oct 14 '09 at 6:01
up vote 0 down vote

Agreements, Agreeements, Agreements. In Real Property the key to success is often location, location, location. In Intellectual Property the key to success is most often comprehensive well-drafted Agreements. These include joint venture agreements, development agreements, licensing agreements, etc.

Depending upon your goals and how negotiations go with the other creators of the "Work," you could go with one entity, you being the sole owner of the entity with the other creators licensing or assigning (for a fee) their rights to the "Work," or if they must be owners, you could set up separate entities for each "Work," wherein you will need to negotiate enitity ownership percentages as well as other issues. In the latter scenario with additional owners, you will likely end up having less control over the direction of the business. You can find posted some strategies for startups at http://www.contactmylawyer.com/business-services/strategies/#top

Disclaimer: This response is provided for informational use only. This response is not intended to be and is not legal advice. Consult an attorney with regard to the specific details of your situation.

share|improve this answer

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.