On Jun 3, 2007, at 5:52 PM, Mark Waser wrote:
>> So, the share allocation is left undetermined, to be determined
by the AGI someday?
That's what I'm saying currently. The reality is that my project
actually has a clear intermediate product that would cleanly allow
all current contributors to determine an intermediate distribution
-- but I'm really not ready to discuss (or more importantly defend)
that yet so it's better to just take it as -- Yes, it will be the AGI.
You may be assuming flexibility in the securities and tax regulations
than actually exists now. They've tightened things up quite a bit
over the last ten years.
Equity and pseudo-equity (like incentive stock options -- ISOs)
should be contracted at the earliest possible time, and before either
financial or delivery milestones if at all possible, if you care
about the value you will actually be delivering to your
contributors. Furthermore, you cannot grant equity instruments to
just anyone, and pseudo-equity instruments like ISOs have a ton of
rules that limit their ability to return fair value to your
contributors. And then there is the what-if of dissolution,
acquisition, etc in which a pre-AGI determination of equity ownership
needs to be figured out -- the way you've set it up, the contributors
would be entitled to squat.
This kinds of things are pretty strictly regulated now, and waiting
until the end to contract a stake to your contributors would be a
disaster for them in terms of both their return and/or tax liability,
never mind the unpleasant scenarios that can occur. I cannot imagine
that a savvy person would accept deferred contracting of options and
equity. It would be one of the worst possible equity stake schemes I
have seen.
The closest *decent* way to do what you want to do is to contract
options upfront with modifying conditions and qualifications based on
future performance.
Cheers,
J. Andrew Rogers
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