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    Startup Legal Structure
    Hi, I and 2 other partners are planning to enter the hospitatlity industry. We want to form a company structure. We have an angel invester ready to fund us the intial seed capital for in change of ownership. All 3 of the partner own no assets and have minimum capital in the business. 90% of the money is going to come from the investor.

    I wanted to know how does the shares work with a startup. Intially the startup is not worth nothing hence I presume you can issue a share for $1
    The investor wants a return of say 18% each year on his investment for the next five years and in the end he would like a percentage of ownership.

    What is the best way to divide the ownership among the partners and at the same time consider the ownership available fo the investor 5 years down the period.

    I believe initially everyone should come to an agreement about the percentage they own in the company at the start including the investor.

    I'm yet to consult my lawyer. I'd like to hear from experienced or people who had a similar startup setup in the past.

    TIA


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    Re: Startup Legal Structure
    Contract, contract, contract.

    In a complex arrangement like this there is no escaping the need for a detailed contract covering every forseeable eventuality.

    Shares can initially be divided however you wish, but bear in mind the constraints this may place upon the payment of ongoing dividends/etc.

    You are going to need to spend time agreeing all this, and then then documenting exactly what is agreed in a contract. I'd suggest that unless you have some legal experience yourself, legal advice is essential.


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    Re: Startup Legal Structure
    This is one of those cases where penny wise is pound foolish.

    Over 15 years of consulting with business owners on structural issues I have never had to bail out somebody who consulted an attorney in the set up phase. The 1 or 2 disasters I see each week are all from folk that thought that because they could do the job well, they knew all about business.

    Doing the job is not the same as 'doing' the company. There is a wonderfiul old adage: you don't know what you don't know. (But your attorney does.)

    When a man with money meets a man with experience, the man with experience gets the money, and the man with money gets the experience.


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    I'd have to agree with the aforementioned poster in that a contract would be VERY wise. All in all, consult your lawyer. (;


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    Earn ownership over time
    Quote Originally Posted by blacksea View Post
    I wanted to know how does the shares work with a startup. Intially the startup is not worth nothing hence I presume you can issue a share for $1
    The investor wants a return of say 18% each year on his investment for the next five years and in the end he would like a percentage of ownership.
    TIA
    The investor is risking the most so they would start on a % of the company however the other contributors could be on board for a few months then bail if things get tough. To help with you everyone else could start on 1% and earn more shares for each month they're involved with.

    This way if anyone bails it's less messy as they don't hold a decision making level of shares.

    Hope that helps - don't overdoo the process though as lots of business don't work out and having the extra few grand in the bank usually makes more of a difference than a contract in the drawer.

    Here's some more detail- All that legal stuff. I write the blog so account for bias.

    All the Best!


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    how to start with no experience and no loss?


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    The legal structure may be different for different types of companies so it is best to consult with a legal expert while starting business.


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    My brother recently started a startup business. He consulted his lawyer Bechara Tarabay for assistance. The lawyer helped him with all the paperwork and other procedure. It is a good idea to consult an attorney before starting a business.


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