Should company equity be divided with silent partners


I had an idea and approached a friend. He advised me to make the product more technical and since one year both of us have been preparing the product. Now the product is ready. He recently told me he would not be coming back from Germany now. Now that the product is ready its all upto me to find funding, execute, expand and everything from now on. His job would be limited to product refinement and upgradation if required and would be further zero after we hire a tech team. We are discussing how much equity should we both share? As he developed the product and has stepped aside. Should he be given equal equity as me who will life long be working on the project?

Answers (3)


163 votes

Sir/Madam,

Looking at your current situation at hand as you said your friends job will be restricted to product refinement and upgradation. But until you hire tech team you will need your friends expertise unless and until you can manage it on your own. And if you cannot manage it on your own it will not be a good potential idea for your business to leave your friend behind. It is of utmost importance to give your friends a deal which will may not look bad by justifying your maximum participation in the company.

I hope my answer will resolve your query, for further assistance you may contact me.


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217 votes

Without him you would not have been able to develop a product and further until you find a tech person he will also help in refining the product. But I understand that subsequent to that he will have no role to play and all other and further efforts will be done by you for sustenance and making it successful. So as far as to issue him equity shares many parameters requires to be considered so that even the other founding partner be rewarded appropriately. Though this is a commercial call which you have to take, taking into confidence your other partner. What I feel could be reasonable will anywhere between 20-30% shares. But then you need to decide whether to issue 10% or 20% or 30% or 40% etc.

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60 votes

Form a joint stock company with limited share capital your friend may invest up to 50% of share capital in the company if the funds are flowing from abroad to India. In such case prior approval of RBI and MCA is required. Kindly write back if you want to know more about this.

Regards,
Adv A.P Shinde.

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