There are two ways of equity distribution in startup companies. One is to distribute according to the proportion of shareholders' capital contribution, and the other is to distribute it equally among shareholders. Both methods have their own shortcomings. The first one often leads to the problem of uneven distribution of shareholders' capital contribution and shares, and the second one tends to weaken the control of the core founder and affect the decision-making efficiency of the company.
So, how should startups allocate equity to avoid the above problems? Taishan School of Management believes that only by solving the following problems can we achieve the best effect of equity incentive.
Three principles of equity distribution.
Entrepreneurship is like sailing against the current. Only when peers have a clear purpose, the same direction, fairness and encouragement can a long-term and stable relationship be achieved. Equity distribution is such a process of implementing "people". Its purpose is not only to establish rules by "putting your ugly words first", but also to clarify the genes and values of the company and reach an understanding among shareholders.
In view of the fact that shareholders and management usually overlap in the initial stage of a startup company, it is not necessary to consider the game between shareholders and management for the time being. The author thinks that three factors need to be considered when establishing equity distribution, namely, shareholder contribution at the resource level, shareholder control at the corporate governance level and the future financing hematopoietic space of the company. Of course, there is still room for decomposition of the above three factors. For example, resources can be refined according to the amount and time of investment, and the amount of investment can be further refined according to the company value such as currency, physical objects and intellectual property rights.
It is better to choose paid-in registered capital than subscribed registered capital.
Unless otherwise stipulated by laws, administrative regulations and the State Council decisions, the registered capital of the company does not need to go through the qualification procedures, but all shareholders can commit to subscribe, and the subscription period is determined by the shareholders themselves. However, this does not mean that shareholders can "only subscribe" or that the higher the registered capital, the better.
Under the subscription system, the shareholder's capital contribution obligation is only postponed, and the shareholder is still liable for the company's debts to the extent of the subscribed capital contribution. If shareholders unrealistically subscribe for high registered capital in order to show the strength of the company, they will face multiple legal risks. For example, when creditors claim compensation from the company, shareholders' liability for repayment will also increase. For example, when the company is dissolved, the unpaid capital contribution of shareholders will be regarded as liquidation property, and tax risks also need to be considered.
Guarantee the control right of the core founder with corporate governance structure.
1. In the absence of special agreement, the general resolution made by the shareholders' meeting requires' one-half of the voting rights held by shareholders', and the special resolution made by the shareholders' meeting requires' two-thirds of the voting rights held by shareholders', such as the resolution to amend the Articles of Association, increase or decrease the registered capital, merger, division, dissolution or change the company form;
2. Voting rights are linked to the proportion of equity, "unless otherwise stipulated in the articles of association."
Combined with the actual situation, startups often have multiple founders, and equity crowdfunding is more popular. The core founder may not reach the absolute shareholding ratio.
The equity distribution plan will eventually land in industrial and commercial registration.
Capital contribution is the necessary basis for equity distribution, but it is not the only basis. Entrepreneur's final accounting equity allocation scheme is often inconsistent with the proportion of capital contribution. Some entrepreneurs will adopt the way of Yin-Yang agreement. On the one hand, they will sign an investment agreement to fix the real equity ratio, and on the other hand, they will complete the industrial and commercial registration according to the proportion of capital contribution.
However, the above methods have great legal risks. Once involved in the lawsuit, it is not only difficult to protect the shareholders' rights and interests of entrepreneurs, but also consumes a lot of time and cost, leading to the company missing the growth opportunity. In this case, we can consider using the way of equity premium to solve the problem: first, entrepreneurs signed an investment agreement before, clarifying the actual capital contribution and equity ratio of each entrepreneur; Then, the entrepreneur shall carry out industrial and commercial registration according to the confirmed equity ratio and the converted capital contribution, and include the part of shareholders' capital contribution exceeding the registered capital contribution into the capital reserve fund.
Make good use of the terms of share repurchase of limited liability companies.
For startup companies, the like-minded among shareholders is particularly important, so the equity distribution needs to be considered from both positive and negative dimensions. In other words, we should not only protect the fairness and incentive of entrepreneurs in the same boat, but also consider the recovery of the company's equity under some special circumstances, such as entrepreneurs' resignation, divorce and inheritance.
Repurchase system is an important institutional way to balance the withdrawal of shareholders and the interests of the company, but the company law has restrictive provisions on share repurchase of limited liability companies. Therefore, several problems should be paid attention to when designing the repurchase clause. First, the repurchase terms should be implemented by other shareholders designated by the company, and pay attention to the fairness of repurchase pricing; Second, the scope of application of the repurchase clause can cover the reverse demand of the company's equity distribution; Third, the repurchase clause and the equity transfer system should be comprehensively considered and designed.
Option pool is still held by the core founder.
For startups, reserving option pool is not a new topic. Many entrepreneurs didn't notice option pool's problems, or gave them out early before the establishment of the option system, which caused a lot of controversy or caused unnecessary dilution of the core shareholders' equity.
The 1. option is essentially derived from the shares held by existing shareholders. However, if it is held by shareholders in proportion, it will be difficult to operate uniformly in the future, which will easily lead to disputes and affect the efficiency of implementation;
2. Under the limited liability company system, the option incentive mode is quite flexible, and the positioning and scheme adopted depends on the company's realistic choice, which should be implemented after the establishment of the company's supporting option system;
Option pool should have made arrangements long ago. When he put forward the equity distribution plan, he separated it from all shareholders and held it by the core founder. Other shareholders can clearly stipulate the nature and disposal restrictions of the holding right through agreement.
Innovatively apply various systems of the company law.
The autonomy space of company law is quite broad, so entrepreneurs should make full use of shareholder autonomy in the articles of association and establish their own equity distribution and dynamic adjustment scheme.
For example, some shareholders are willing to "spend a lot of money and occupy a small share". Such shareholders can use agreements and articles of association to decouple dividend rights, preemptive rights and voting rights, and design an equity structure that meets the needs and strength of shareholders; For another example, the idea of capital instruments can be used for reference, and the idea of convertible preferred stock and liquidation priority can be used to design equity allocation.
The equity distribution of start-up companies is not complicated in nature, but entrepreneurs really need to pay attention to it. If we can spend a small amount of time in the early stage to straighten out related problems, we can get twice the result with half the effort and help the company develop healthily.
;