Gurgaon | 22 Jun, 2017 (2 years, 7 months ago)

Startup Funding and Finances

Start-up co-founders equity distribution issue

I am one of the 4 co-founders of a company. I exited the company after 1.5 years. The problem is that we didn't register the company initially in our names (it's still running and not registered). It was run under the aegis of other registered LLP which had one of the co-founders and his father as partners. When we started we didn't talk about share/equity distribution. Now we have to figure the distribution out and my exit. So the idea of the company started around April 2016 with 3 co-founders( I didn't come until July). I joined them in July after which we started setting up operations. Now, two of the co-founders invested their money(~7.5 Lakhs) but were not actively involved in the operations and lived+worked in different cities/countries, the third co-founder was involved in daily operations but was still running his own firm while I was the only one working full time. The third co-founder also provided for my salary which was meager 20000 per month as he was earning from his other business. I was the only one who relocated and had to withdraw salary for survival. Now we have to decide what percent of equity each will get and how will my exit happen. It is also important to
Answers
26 Jun, 2017 | 15:26

In order to respond to the query, there are some important aspects that may need to be answered. Some of those are:
1. Whether there was any other form of agreement where the responsibilities of the founders was listed out?
2. Whether there was any intellectual property input provided by the co-founders, especially you>? If yes, how important or integral was it to the business and whether it was protected under IP laws?
3. Under what arrangement did the other co-founders provide money? Did they invest in the registered LLP as capital contribution or as consideration for services rendered or anything else?
4. Were you provided the salary as an employee/ consultant of the LLP or the third co-founder? Was there any agreement which you signed?
5. What is the nature of your business that you are performing?
6. Are you planning to register your venture separately now or have you considered your venture to be unviable and want to fully settle all accounts amongst the co-founders?

There are various aspects that need to be considered before you can be provided information about further steps. However, assuming that there are no agreements that you have entered into, it would be highly unlikely that you would have a share in any equity at this stage unless you have brought in significant IP or technical expertise AND that the same is critical for the venture to sustain. Even then, there are other criteria that would have a significant role in determining rights, and considering that you all have not registered as a separate entity, the issues may become complicated because of that as well. Do reach out on LinkedIn in case you need clarifications.


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