1

I currently work at a company that has one director (which is the only other person in the company at the moment). The business is growing quite well, and I have been offered 30% shares over a three year period. We will need to draw up a contract soon for this, but I'd like to ask the more knowledgeable some questions first:

  1. What exactly will 30% mean for me?
  2. Is there anything I should I be aware of before agreeing?
  3. What are the most important sections for the contract to cover?

This is all very new to me, so I just want to make sure that I'm on the right path before signing any documents.

Thanks in advance!

  • 1
    This varies with jurisdiction. What country is the business in? – doug Dec 7 '16 at 8:09
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Keep in mind a good lawyer will have the contract cover the five D's:

  • Divorce - what happens if one partner must share ownership with an ex-spouse.
  • Drugs - what happens if a partner breaks the law.
  • Disinterest - what happens if a partner no longer wants to participate in the business and wants to sell their shares.
  • Death - what happens if a partner dies.
  • Disagreement - what happens if partners disagree on significant issues.

Its really best to lay these things out ahead of time. I watched, first hand, two friends start a business. When they were broke and struggling the worked very well together. Then the money started rolling in. Despite exceeding their dreams they were constantly at each other's throats fighting and bickering over stupid stuff. In the end, because they had decent legal docs, they both were able to pull money out of the business.

Had that not been worked out they would have destroyed the business so that no one would have profited.

4

Get involved a lawyer and Accountant. Without it you may not be sure what you are getting.

What exactly will 30% mean for me?

It will mean exactly what gets written in contract. It can mean you are owner of 30% of the company. If this is structured as partnership, it would also mean you are party to 30% loss. It can mean by current valuation, you get x fixed shares. In future if the directors creates more shares, your % ownership can get diluted. Or anything else. It all depends on what is written in contract and how the contract is structured.

Is there anything I should I be aware of before agreeing?

Get a draft and talk to a Lawyer and Accountant, they should be able to tell you exactly what it means and you can then decide if you agree to it or not; or need this contract worded differently.

  • "30% shares" sounds like it' organized as a corporation or LLC type entity. Or that could be the intention. Way too little info to advise other than, as you say, seek professional opinion. The biggest mistake I see people make is a lack of a clear agreement about how future conflicts will be resolved. For instance, what if more capital is needed? Minority owners have certain rights but they are very limited. Understanding, and agreeing is critical. – doug Dec 7 '16 at 8:23
  • @doug Agreed. It is also not clear about jurisdiction. While we may have an LLC with Single Director. Some require at least 3 or more directors. – Dheer Dec 7 '16 at 10:21
  • If it is a limited liability company, then you as a person are not affected by losses. Heavy losses may mean the company becomes worthless, so you have a 30% share of nothing, but you will never personally be responsible for losses. – gnasher729 Dec 8 '16 at 9:01

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