At present, the entrepreneurial organization is generally a company, not a partnership in the legal sense. The legal title of the founder is shareholder, not partner. However, since everyone is used to calling it a partner, this article also calls the founder a founding partner or a partner.
About the design of the ownership structure of the entrepreneurial team, including who can participate in the equity distribution, how to cut the equity cake, the factors that need to be considered in the equity distribution, the mature mechanism of the partner's equity and the arrangement of the partner's withdrawal mechanism for special reasons.
What is a partner and who can participate in the initial equity distribution?
Partners are generally understood as people who work together. At the entrepreneurial level, my understanding should be that we can go back to back and have our own advantages, and realize the effective integration of their respective advantages including R&D, operation, capital and channels. Partnership is close and irreplaceable. Only these partners can participate in the equity distribution.
The following people who are involved in the entrepreneurial projects I have coached are advised not to participate in the initial equity distribution.
1. Resource providers that cannot guarantee continuous reservation. Some projects need administrative resources such as telecom operators, tourism, culture and transportation, and these relationships need someone's personal relationship, so there is uncertainty and they cannot be partners. For the utilization of this part of resources, resources can be exchanged and obtained in the form of consultants in the early stage.
2. part-time workers. Entrepreneurship is a long-term undertaking, which needs to be devoted to it. If it is a part-time job without capital contribution, it is not suitable to be a partner. I won't go into details about the specific reasons.
3. Expert consultant. The start-up and smooth operation of some entrepreneurial projects need consultants with specific majors, but some consultants will propose to exchange shares without consulting fees, which is not desirable. Because he is a consultant, of course, he may "ignore it" for some reasons, and his shareholding will not only fail to play its due role, but also have a serious impact on the project.
4. Early employees. Some entrepreneurial teams, in order to retain talents, may offer a small proportion of shares, or even use a small proportion of shares to offset wages and reduce wages. This is also not desirable, because the early equity is very precious and cannot be given easily; Moreover, the equity of start-up companies is worthless in the eyes of employees and does not play an incentive role.
5. People who don't agree with the concept of partnership development can't stick to it for a long time and can't help each other in the same boat. The reason should be easy to understand. Although it is easy to understand, it is not so easy to do. In the process of starting a business, there are many cases of quitting halfway for various reasons. In this sense, finding a like-minded partner is more difficult than finding a marriage partner, but it is true.
How to cut the equity cake
Partners can't split the shares of the company. The indispensable support for the development of partnership enterprises also includes new partners, core employees and investors. Therefore, when cutting the equity cake, we should have a long-term vision, reserve the equity of new partners that need to be introduced in the future, reserve the share of employee incentive equity, and reserve the share that investors that need to introduce in the future need to dilute.
There is no fixed proportion for the specific reserved share, which depends on the actual situation. These reserved shares can be held by CEO partners.
Of course, the reservation I am talking about here is aimed at ordinary limited liability companies. For joint-stock companies, this problem does not exist. A joint-stock company may issue additional shares, not necessarily by appointment.
Reflections on the proportional distribution of partners' equity.
After reserving the equity, what remains is basically the equity that the partners can distribute. Regarding the distribution ratio, the factors usually considered include:
1, contribution. If all partners agree to contribute in proportion, and the resource advantages of all parties are basically the same, they can be allocated directly according to the proportion of contribution. If only some partners contribute, they should get more equity than those who don't.
2. The CEO of the project should get relatively more equity. Because the CEO is the soul of a partnership, he has more responsibilities to the company. Only when the CEO obtains a relative majority stake can it be beneficial to the decision-making and implementation of entrepreneurial projects.
3. Comprehensively evaluate the advantages of each partner. For example, some projects don't need much money to start, but rely on the patents of partners; Some projects need creativity, and products are only technical realization; In some projects, products do not have absolute market advantages, so promotion is more important; In some projects, partners may not need to contribute capital, but as long as they are partners, it will be easier to raise funds, import the resources needed for the project and IPO in the future; All kinds of situations cannot be listed one by one. Therefore, for a specific situation, the corresponding resource providers should hold relatively more shares.
4. Scientifically evaluate the role of each partner in each stage of the initial process. In the start-up, testing and start-up stages of entrepreneurial projects, the role of each partner is different. The role of each partner in different stages should be fully considered in the equity arrangement, so as to fully mobilize the enthusiasm of each partner.
5. There must be an obvious equity ladder, and it must not be proportional. If there are three partners, the most scientific proportion structure is 5:3:2.
The above is the principle, but in fact, it is possible to convert the approximate equity ratio in a quantitative way. Specific methods, limited to space, I won't elaborate. If you have specific needs, communicate separately.
Maturity mechanism of partner's equity
Many entrepreneurs are unfamiliar with the mature mechanism of partner equity. Its legal value lies in preventing the withdrawal of individual partners from affecting the project, and stipulating that the equity allocated by partners is not real equity, but conditional maturity and realization.
In the process of starting a business, the entrepreneurial project has started, but some partners may quit for various reasons. However, if you have left the company, but still hold the company's equity, especially if the company has completed financing or achieved rapid development, it is tantamount to enjoying the success, which is very unfair to other partners who are still paying.
Then, in this case, there should be countermeasures, that is, the stock term system.
For example.
Party A, Party B and Party C are partners in this project. A is the CEO, B is the CTO, C is the chief operating officer, and the equity ratio is 50%: 30%: 20%. The agreed equity will expire within four years with an annual maturity rate of 25%. If any partner withdraws within four years, the immature shares will be repurchased by other partners (the company repurchase can also be agreed, but it is recommended to agree on the partner repurchase as far as possible, because the company repurchase involves capital reduction and the procedure is relatively troublesome).
Just one year after the project started, C, the chief operating officer, quit. Then, the mature equity of C is: 20%× 1/4=5%, and the remaining 15% equity belongs to immature equity, that is, C can still hold 5% equity after leaving the company, and the immature equity is repurchased by partners A and B according to the equity ratio. In this way, on the one hand, we can recognize C's contribution to the company, on the other hand, we can use the repurchased immature equity to attract new COO partners.
By the way, the above mature model is adopted in stages. In practice, it is also agreed to mature in stages according to the progress of the project, such as product testing, formal launch, iteration, promotion, total number of users and daily users, financing stage, and increasing project performance.
Here, in terms of repurchase, the determination of repurchase price is very important, and it must be clearly stipulated in the venture partnership agreement that the repurchase price shall not be negotiated after such a situation occurs. In addition, the common ways to determine the repurchase price are pre-set equity price and PE multiple estimated according to profit.
Disposal of equity recovered for special reasons
In practice, in the process of project promotion, there will be divorce, crime and death of partners, which will lead to the withdrawal of partners. If the legal response plan is not designed in advance, the project will be seriously affected.
1, divorce. If the partners have no agreement on the property of husband and wife, the equity belongs to the joint property of husband and wife according to law. If Partner A divorces, the equity held by Partner A will be regarded as the property divided by husband and wife, which is obviously not conducive to the development of the project. Therefore, in the partnership agreement, I suggest adding a special clause, which requires the partner to agree with the existing or future spouse that the equity is the partner's personal property, or that the spouse does not claim any rights in the case of divorce, that is, the "potato clause".
2. Crime. If Partner B is investigated for criminal responsibility for committing a crime and is unable or unsuitable to continue to participate in the project, he will be forced to quit, which shall be handled with reference to the above-mentioned equity expiration mechanism.
3. Legacy. The company's equity belongs to the heritage. According to the provisions of China's "Inheritance Law" and "Company Law", its shareholder qualification and equity property rights can be inherited by its entitled heirs. However, due to the particularity of the entrepreneurial project, it is obviously unfavorable for the project to inherit the shareholder qualification of the partner by the heir. The company law does not stipulate that shareholders' qualifications must be inherited, but the articles of association do. The implication is that the company's articles of association can stipulate that the entitled successor of a partner can not inherit the shareholder qualification, but can only inherit the equity property right. Therefore, I usually ask the entrepreneurial team that in order to ensure the orderly and benign progress of the project, the articles of association stipulate that the entitled successor of the partner can only inherit the property rights of the equity, but not the shareholder qualification.