I recently had a business agreement with my co-founder to split our business 70-30. 70% for me and 30% for my co-founder. We filed the LLC and two days ago my co-founder called me and told me that his family is giving us 40K with no ties for him and our business. I am tonight going to talk to my lawyer about the ownership, but want to know if giving him more equity is the best decision.

I thought about treating the money as a loan and he would get repaid the money plus gain a percentage back once our company starts generating revenue. I just would like to know if their is anyone else out their that has been down this route and might know a great way on going about this.

  • 1
    This doesn't sound like a law question. It sounds like a financial/business advice question.
    – animuson
    Sep 15 '15 at 22:00
  • @animuson Would this question be better for "The Workplace" forum? Sep 15 '15 at 22:01
  • Or perhaps better at Personal Finance & Money.
    – feetwet
    Sep 16 '15 at 1:48
  • @feetwet I thought that at first, but looking at their help center, it seems corporate finance is explicitly off-topic there. I'm not sure there's any place where this belongs.
    – animuson
    Sep 16 '15 at 3:04
  • Oh well. In any case, as Mowzer points out, it will be prudent to involve a lawyer, so find one who can advise you on the most cost- and tax-effective way of structuring this and then draw up a contract/membership agreement accordingly.
    – feetwet
    Sep 16 '15 at 3:11

The general rule is that equity is the most expensive way (in the long run) to finance your startup. However, debt carries more risk. Only you can decide, given the nature of your business and all the other factors at play, whether it's best to use debt or equity financing.

That's the business side. The legal side comes down to this...

Whatever you decide, make sure it's clear and in writing.

Personal experience speaking here. Startups fail more often than they succeed, so you will want to have the terms drafted by a lawyer after you all agree how you want to handle the capital. Even if you are successful, it's important for everyone to agree on the terms formally and in writing because internal shareholder disputes are a common way companies fail also. Especially when you encounter the inevitable "speed bumps" along the way.

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