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I have read numerous posts and articles on this topic and it is clear there are several schools of thought that involve many shades of grey. I have come to a conclusion but am seeking affirmation from people with actual experience in this area as this is my first business venture.

Background: My friend and I started a venture 5 years ago with the notion of being 50/50 partners. We are not a corporation at this point. This started out as more of a hobby that has blossomed to a potential business. The business involves oceanographic data collection which requires instrumentation to collect the data and subsequent data processing and analysis. I personally design, manufacture and assemble the equipment. I write the code for data processing and analysis. I currently work in the industry and have done so for the last 10 years while my friend has about 1-2 years in the industry. I have contributed over 93% of the at-risk capital to date. My contacts have generated our only revenues. We both have 40+ hr/wk jobs, I put on average 20 hrs/wk to the business where my friend puts in on average 1 hr/wk. The only aspect we are 50/50 on is field work which takes two people.

The one question I keep coming back to is how would the business fare if either one of us left? If he left I get a grad student from the local university to help with field work. If I left it would be virtually impossible for him to continue.

So my questions are 1) how would you split up equity, or am I doomed with my friend as a partner? 2) How can you transfer IP into the company for equity?

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you need to talk to your friend – TimJ♦ Feb 16 '12 at 18:40

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This is somewhat a duplicate of another OnStartups post, see Joel's awesome answer regarding equity.

On a related note, if you're both employed somewhere that utilizes your brains more than flipping burgers at a restaurant, you really need to review your employment contract. In many employment contracts, your inventions are owned by your employer unless you have an exception. The legality of this varies by region (for example, in California USA it is different than in New York USA, I'm not sure on other countries).

Make sure what you are working on is really owned by you. Then set up a corporation and split it how you want. As Joel says, it doesn't matter how much money or time each founder has put in, split it evenly, but make sure there's vesting so that if one leaves, they don't end up owning half the company and not contributing.

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Andrew thank you for your answer I appreciate your feedback. With respect to the ownership of the IP I own it and this is fully recognized by my employer as I did this on my own time with my own resources. I have read Joel's post several times and I like it but if I had formed a company 5 years ago when the idea was hatched and had the foresight to including vesting then today we would both be fully vested and I would still be the only one with any real skin in the game. Fortunately we did not do this so I still have options about how to go about splitting up ownership of the company. – Tony Cimaglia Feb 16 '12 at 14:51
If you have not yet formed a corporation, how exactly are you currently splitting profits? – Andrew Bradford Feb 16 '12 at 18:02
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It sounds as though you already have a clear agreement of 50/50 ownership. And although you don't spell it out, it sounds as though the activities only you are doing are precisely the activities only you can do. I'm not denying that the work is unequal, just taking this back to basics.

Going forward, clearly you're not happy that the split of work and reward is working out. Maybe that means that you want to see your higher contribution reflected in a higher share of the venture. Or maybe you want to maintain the 50/50 ownership but be paid for the extra hours you're putting in. Or maybe the learning you've acquired makes the original partnership redundant and you'd ideally like to go forward alone.

Think about these options - what you'd rule in, what you'd rule out. And then talk to your partner, explain the problem you have and the ways you've thought of to sort it out.

In the end you'll need an amicable agreement, and in my experience while it's worth thinking through things in advance, presenting out of the blue something fully-formed without your partner's involvement is going to be provocative and put your partner on the defensive.

Good luck. It's a tricky situation, but perhaps rather more common than you imagine!

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