Conquer and divide
Jul 23 2012, 13:22 | By SME Mentor
You have started the business because you believed in the idea and were convinced it would work. But, as time went by, you added 2 others to the board, making them co-founders. The company is no longer a sole proprietorship; it has evolved into an LLP [Limited Liability partnership] or a public/private limited company. When drawing up the necessary documents, there is one aspect that leaves you lost.
The key areas to be considered in case of splitting of ownership are 1) Idea generation; 2) Creation of Business Plan; 3) Expertise; and 4) Responsibilities.
The birth- Idea generation
Every business has that one person who brought forth an idea, got the ball rolling and initiated the business. He is the founder, and over time, he adds on few others who bring in either capital or expertise. Ravi Kikan of Startup Mason spoke about how "every company has a birth, a life given by a single idea that is then developed and cared for by many. So, when the number grows from 1 to many, the question of splitting the ownership arises." But the person who is responsible for the company's existence gets top priority across all stake related decisions.
Equal or not
"Consulting a good legal advisor is a must when it comes to such issues. Most companies have an in-house legal department who is responsible for creating documents, especially those related to ownership and percentages." Says Vijay Nair, a partner with a leading Law firm in Delhi. He goes on to add "it is not necessary that split in ownership has to be equal among founders. It will all depend on who deserves how much and why." If there are 4 founders, the split need not be 25:25:25:25, it could be 50:20:20:10 [highest for the person who had the idea and 10 for the person who joined in last, bringing in a bit of experience]
What is the value the co-founder has brought to the table? And how substantial is it in comparison with the revenue generated? This is a question all founders need to ask each other when it comes to drawing straws and seeing who got the longest. Pushpendra Mehta of VCherish Consulting says "I have the largest stake in the company, while others have lesser. Some brought in funds, while others came in with expertise. VCherish wouldn't be here today if it weren't for me, so i retain maximum ownership" he says proudly.
Senthil Nayagam, founder of Railsfactory says "since there was just the 2 of us, and both of us were in this for everything, we did decide to divide ownership equally. But for the other ventures i am a part of, i get a larger percentage as it is my idea, my thought, inputs that led to the birth of the businesses. As for what we left in employee stock pool, it was the revenue we earned on which salary was deducted."
Unfortunately there is no hard and fast rule in the way equity can be divided and no two companies can follow a standard formula. Rahul Narvekar Founder of Fashionandyou portal says "There are no hard and fast rules; it all depends on the funding available and the partners involved in the business". End of the day the division should be done in a rewarding manner and the founders and employees should get what they deserve.
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May 17 2013, 16:16
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