I have to agree withon this one – “You should have your attorney help you with this. If you don’t have an attorney, you really need to get one.” A lot depends on circumstances particular to your startup – like where you’re incorporated, how many co-founder you already have, if you’re planning on seeking venture capital (VC), and much more. Here’s some general advice that may apply to you, but make sure you speak with an attorney so you fully understand your situation:
- You might have to amend the Founder Agreement. Other agreements may need to be updated (bylaws, IP agreements) as well, especially if you plan on seeking VC.
- The board of directors may have to approve resolutions authorizing the issuance of additional shares if the startup has none to allocate. This move may require amending the Articles of Incorporation. Depending on your company’s setup the shareholders may also need to approve this change as well.
- Rather than issue new shares, you could have one co-founder sell the new co-founder existing shares.
- Make sure you have founder vesting schedule. This protects you as the founder from having someone join your team and leave quickly with a large percentage of your company without providing much of a contribution. Under a typical vesting schedule for employees, shares vest over a four-year period, with 25% vesting at the end of the first year (called a “one year cliff”), which ensures employees stay around for a year before owning any of the company.
You really should check out. Our legal platform regularly helps startups with this situation by offering affordable legal advice from experienced startup attorneys. Simply stop by our site, answer a few questions and then wait for a free, no-obligation price quote for your work. We also offer free consultations! Good luck with everything and don’t hesitate to message me with any other questions.