Spliting equity in starting a business


Hello all,

I am an engineering student trying to start a startup with my prof.

In the beginning, my professor introduced me to a new product. This product is new for india but, readily available in foreign countries. It is imported in india but in very small quantity because chinese sell it expensive. We want to make it in india. So I presented the idea to our institute's incubator where we got selected and got some grant to explore the idea further. Now we are doing that, exploring about the idea. Now my prof wants to make the founders agreement. So I am in total dillema how to split the shares. Following are the points on basis of which decision needs to be taken:

1. Idea is from my professor and he has the technical expertise. But these technical aspects and manufacturing processes are largely known. Raw materials are going to be imported and machines are going to be purchased domestically. We contacted the supplier just few days back.

2. We do not currently have plan to make investments ourselves for near future. We have financial support from the institute for now.

3. In future, we might go to the investors for investments. That will be done by both of us.

4. We are going to do all the managerial, marketing, production work together. And as he is in governament job, initially I will be the one running here and there.

5. My professor is skeptical about me staying in the company. He thinks I might leave the company. So in the intial offer, he has considered this also.

In the initial offer, he told to give me 5 % annual equity increment for 3 years and 25000 per month salary for 3 years.

I do not think this is fare. So I need your help in deciding this equity split. I want to have important managerial role in the company.

Kindly help.

Thank you.

 
Reply   
 
Lawyer in Hyderabad.Email:ramachary64@gmail.com

You have more flexibility in the initial ownership decision, however, than some concrete designation of ownership from day one.  Vesting simply involves the right of the firm to buyback shares contingent upon certain described conditions.

Conditions that might determine the grant/buyback of shares could include such factors as: the passage of time, the accomplishment of certain tasks, or the occurrence of certain events. In fact, many vesting agreements condition these right upon the passage of time.

 
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