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We're a startup that is made up of 4 students. 3 graduated and 1 in his final year. One has taken a job for 4 days a week and is willing to work on our projects the other 3 days. So we have 2 full-time people. We have one main project that we have used to win a global competition with (microsoft imagine cup). We plan to finish this project by re-creating components and selling them SaaS.

We recently had a guy volunteer to be our Managing director, he helped us get the company legal, registered, etc. He is now finding us a place to stay and getting us projects on the side to work on. He has managing roles in 2 other companies and has his own 1 man show. How do we handle someone like him? What role is he playing? He says he only needs a commission of the projects we get, and in the future, we can give him a percentage of the company when we start selling our products if we want to.

He is also recruiting 3 other part-time programmers/designers to work with us. How do we handle these new guys? How do we pay them without tax affecting us? We have no money yet.

We also have a lawyer who is willing to help us for free. He said he will handle shareholder agreement and other contracts. What should we look out from this law firm?

ps. The company started with 2000 shares, each of the founders has 500.

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5 Answers

up vote 2 down vote accepted

Complex topic, you should consult a startup lawyer for that. Just a few considerations (from my personal experience, I'm not a lawyer)

  • it seems weird to me you need a Managing Director. You are still completing your project, and all the paperworks he's doing for you are actually created by the startup lawyer. Maybe it would be better to count on him as an Advisor (that is, without an executive position)?
  • as xiaohouzi79 has written, having somebody to run your business in such an early stage is risky. First, because it can (could, depends on your company structure and bylaws) fire you; second, because in the early stage of the company you are likely to do a lot of changes to your product, business model, positioning, and you don't want some external to have any control on that
  • you write "started with 2000 shares, each of the founders has 500". I strongly advise you against assigning equity upfront to anyone, even founders. You're 4 founders, you'll likely have many discussions and (hope for you not, but that's normal) problems within the founding team. That's life, and you don't want anyone being able to walk away with 25% of the company. Use vesting or buy-back options at a fixed price.
  • good luck with hiring part-time developers. While there's no reason you cannot pay them with shares, I doubt anybody will accept that.
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up vote 1 down vote

How do you handle someone like him?

You should decide as a group how much you want this guy involved, be assertive and decisive and then get it down on paper via a reputable legal representative. Spell out clearly how much you are willing to offer him and how much control he has.

I would also suggest that it is dangerous having someone else arrange workers for your business. I'm no legal expert, but in my country if those guys got fired then your company could be liable if there were any legal issues and you didn't even interview / hire them personally. Again you should seek independent legal advice on this.

If your idea is as good as you indicated then it would be sad to see something like this interfered with. Take some control.

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up vote 1 down vote

This guy does not deserve shares for that. A managing director is a job, not an ownership position. Sounds like you guys should be very careful, He can qucikly bring on his own team of programmers and with equity take a chunk of your company.

I have seen these things go toxic, the less chefs the better. You can always hire dishwashers, and prep cooks, but keep the chefs to a minimum.

Give him income based on his performance, Find out what he brings to the company, how he can increase its value. Its time one of you four, buckle down and learn the business side of running a business. The resrouces are out there, and its both fun and easy enough to do. If you have trouble communicating and are using this guy as a voice for your company, learn public speaking or hire a PR person to do that for you.

Bottom line, dont be quick to give away equity. Hold as much as possible. Its very critical to understand that the equity you give away now will haunt you as you need to grow in the future..

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up vote 0 down vote

As with anything else, there's no easy answer. The four of you should sit down, figure out what you need, what you'd like to pay for it, and what you can afford to pay for it (i.e. the point after which you say "no thanks"). Then sit down with these folks individually and see if you can negotiate arrangements that work for all involved.

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up vote 0 down vote

  1. "Managing Director" Sounds like a trap: run away. I'm guessing it's the first guy with a business suit you ever met, you find him impressive. 6 months from now, you'll wonder how you ever could sink to such lows.

  2. The right solution is for your group to figure out who the CEO is, and quick. The way you split shares is not great, but you'll have to do.

Once you have a CEO, he can figure out all the minor stuff about the lawyer and so on. I trust that because being one of the 4, he'll explain, discuss and be transparent, while handling the details.

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The team put me to be CEO, thats how I ended up asking questions. – Shawn Mclean Nov 8 '10 at 22:31

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