Is it a good idea to issue shares on a regular basis (say quarterly) to all co-founders based on performance/value/etc.?
I've read a bunch of blog posts and questions here about equity split but none have talked about this approach.
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Yes, giving the founders ownership over time can be a very good idea, in fact I'd strongly recommend it if possible. This is called "vesting" or having a "stock vesting schedule". Whether you can do it based on performance -- I think that could degenerate into a bad, irrational discussion between the founders. Things are rarely black or white in a startup, and if ownership is involved then the discussion can easily be sidetracked by strong emotions. Some links about vesting: http://walkercorporatelaw.com/2009/09/10/founder-vesting-five-tips-for-entrepreneurs/ http://venturehacks.com/articles/pick-cofounder (towards the end) http://answers.onstartups.com/search?q=vesting Update: See Jason's good clarification -- exactly when ownership of shares change hands should be discussed with a competent adviser, as your country's tax laws and other laws can have a big impact. So please go see a good lawyer. Update 2: Here is a good introduction to vesting. |
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I'd suggest you speak with an attorney with serious start up experience here. One approach to review - issue stock to the founders on the day you incorporate and file an "83B election" with the IRS - this lets you set the basis for any future capital gain based on the value on the date of incorporation. (if you go this route, they must receive your filing within 30 days). Then have a reverse vesting agreement which outlines how the stock would be returned to the company if milestones were not achieved and / or if a founder left the company. This should include explicit price and date information. |
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The spirit of your idea is good, but actually issuing more stock is not the right way to go. There are complications both for business structure and taxes which there's no reason to incur. Instead you vest (as Jesper said). That means issuing all the stock at once, but with a vesting document explaining how stock reverts back to the company if someone leaves (forcibly or otherwise). There's a conceptually identical but sometimes advantageous (legally or tax) system called "reverse vesting" where you issue all the stock but the company has the right to "buy back" the stock, but is able to buy back less and less over time. Consult a business attorney about whether that's wiser in your particular case. |
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