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Divide equity among the co-founders of a business in Michigan

On Behalf of | Feb 25, 2015 | Business Formation & Planning |

The founders of new companies may not be sure how to divide equity fairly among themselves. There are several factors that they could consider when making this decision.

One aspect to consider is which founder came up with the idea for the company. In a company with two founders, the one who had the idea typically gets a higher stake. Some company cofounders also consider how much each of them sacrificed, such as a higher salary or guaranteed pension, to get the business started. Higher equity stakes usually go to the cofounders who sacrifice the most.

Another factor is how important each of the founders’ business roles are. Generally, individuals who are not as central to the management of the business do not hold positions in a company as important as top executives. For example, a founder who is a CEO usually deserves a higher share of the equity than a founder who works in the company as a consultant. Similarly, cofounders who contribute to the team more are typically awarded with a higher equity share.

In some cases, however, the cofounders of a company may equally split the equity. This could happen if they came up with the idea for the business together. Equity might also be split down the middle if the values of their contributions, sacrifices and roles in the company are about the same.

Company cofounders who do not believe that they are getting a fair share of the equity in their businesses could take the issue to business and commercial law attorneys. The attorneys might also be able to help them with other business planning matters, such as those related to real estate, liability and taxes.


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