Cast of characters: Person A has a significant consulting practice in an industry and wants to start building tools for clients that A thinks are resellable (a la 37signals). A's got a prototype that is functional but doesn't scale both technically and as a product (only integrates with one client X has) etc.
Person B: Not interested in contract work but interested in working for equity stake in the company. Smart technical guy who has worked with A in the past.
Person A and B get along pretty well, have worked together successfully in the past and during the development of the project. B has now completed a rewrite of the software to support multi-tenants, scale to some reasonable estimate and the product is ready to go. A is now working with his consulting client base to begin generating revenue for the product. It looks like the product will make revenue, but relatively meager in the first few years (maybe enough to pay these guys a mid-5 figure salary if all the clients sign up).
How should this company be structured so that it can function as a lifestyle business for both A and B? What should A and B do to protect themselves from the other no longer participating in the business? What if A and B want to take investment in the future? If the percentage ownership is different for A and B, what's to protect the lesser owner?
- Give A and B profit rights in an LLC
- A and B get equity that vests over time
- A and B get full equity immediately with some buyout provision
Thanks for reading this far and of course, we are also consulting a lawyer but would like to get founder's opinions as well.