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How Should Equity Be Divided Up With Co-Founders Of A Company

The “equity” in a company is evidenced by shares issued to the founders by the company. The number of shares you get determines the percentage of ownership you have, as compared to the other co-founders. The percentage ownership for each co-founder reflects the value of their contribution to the new organization.

Shares are often issued to valued employees as a reward for their loyalty in the past, and as an incentive to have them stay with the company into the future. The companies are usually run by the shareholders on a majority vote basis. The shareholders will select the directors and officers who will run the business on a day to day basis.

The majority rules issue will place these decisions and appointments in the hands of those shareholders holding the majority interest. Shares that are non-voting can also be issued to reflect equity ownership, but they do not vote or have a say in operations of the company.

Shareholders’ interests can be established and protected by way of a Shareholder Agreement. This allows the shareholders to establish management and other corporate issues by contract so that the issues that may arise in the future have already been settled.

We recommend that any company with more than one shareholder have this agreement in place to avoid conflict in the future. There are two situations that the company will need these issues settled by agreement and they are if the company does not make any money and secondly, if it does.

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