I'm an entrepreneur and I own a clothing line. It's a startup business. I met my designer a year ago when there was not even a legal entity formed. I had the idea and went to her for her experience and knowledge and 75/25 split was thrown out but on my end never agreed upon. She helped me design the collection but it was because of me (sales & marketing) that we've gotten the accounts we have now. She also got a full time job in the meantime and was not around to help when production started. The company has been operating now for 3 months and before we move forward the equity distribution question popped. I offered her several options including 90/10 split with option of earning the extra 15% over 3 years but she's not happy. The reason why I did this is because I want to see her work because for the past 3 months she's been working full time and not putting in as much time. She wants 25% and I don't feel it's deserving. She's basing 25% on what she's done and will be doing. I'm basing 10% on what she's done in the past year. She's also not reliable, always late on task, and has no sense of urgency. I would have no problem giving her 25% if she was on the ball, hustled, and worked her butt off. She feels entitled to the 25% when she hasn't performed at the level deserving 25% of the company. Please help!!!!
You need to decide if you want to work with this person going forward because this has been a bad start. She threw out a figure and you say you didn't formally accept, but you took her work anyway and sold it. Seems like the designer allowed you to do this, so I'm not saying you stole anything, but it appears you accepted the offer because you haven't shown any other compensation. Paying her for the time spent like a consultant or part-time employee may have excused you from giving equity. Do you really want to sit in a court room and explain how you got this person to work for free?
Decide what the business is worth and make an offer to buy her out if you don't think it is going to work.
Design is a very strange thing in how it can be leveraged. Someone draws a desing on a napkin and you sell a million dresses is going to make a lot more money than someone who spends 20 hour days creating a full line of fashions that doesn't sell.
Sounds like you are pretty greedy, :), but you are right. The trouble you run into is that you did not manage her exceptions right from the beginning when the numbers were thrown out. You need to make her understand that 10% of something is better than 25% of nothing, and that you could put your efforts behind another designer.
She may be working, because she has to, and maybe she could be committed for time, if the business were profitable enough. The problem you run into is that many people would not do much for a 10% stake in only equity. Maybe a combination of a salary and very low equity would make sense for her or future designers.
In my humle opinion you're right. Any founder who isn't committed (see Onstartups posts about Committed vs Involved) shouldn't have more than 10% stock. However, she's not likely to think so. Especially if you've previously been talking about 25%.
A more important question is: is this how you want to kick off your company? Complex relations between founders aren't likely to get better over time. Trust me, I've seen it multiple times. If she's not putting in the work, not being committed, and not putting in the hard work and long hours, I'd seriously question if I wanted to do this with her. Startups are hard, and they're supposed to be. Otherwise everyone would do them, right?
It's tough to say, but you should think about finding someone else to partner with.
Defined "not agreed upon". if you did NOT clearly reject it you may find out that it i a 75%/25% split because she could always make a claim to work under pretense.
Don't like that? Good, there WAS a cleear reject of the 75%/25% split. What do we have now? Hm, 2 people agreeing to be partners and doing business for 3 years? Many jurisdictions say this is a 50%/50% partnership because you failed to define.
Even worse? Here - you dont agree then your agreements arevoid and she can pretty much ask for industry standard rate. Because without an agreement you also have no right to sell her designs. Have fun throwing away your production / stock and negotiating with her about the price for the stuff already sold.
Seirously, this is TOTALLY your fault. You fucked up. Badly. Think you are a business person? Agree on the damn split BEFORE money gets spent.
Alternatively, accept that:
is atually normal. She is a designer. Inspiration does not run on a clock.
Basically, decide what you want. if I were her you would have my lawyers whipping down on you, starting with both, an immediate court order to stop selling MY intellectual property an possibly a damage suit following.
She wants 25%? Give her 30%, excuse for what you did. Make sure all financing going into the company is accepted for fast payback (as a loan), once the company builds equity from sales (which you say is happening).
Or get legal advice and wait for a fight. In that you will loose a lot more and end what could be a very good partnership.