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.
I don't think so. I'm pretty aware of the current conditions.
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.
I'm not sure what you mean by "if you care about the value you will actually
be delivering to your contributors" but, in any case, ISOs are exactly as
problematical as regular shares/equity -- ongoing post-AGI profits are what
need to be distributed, equity and control really only matter to ensure that
the profits are distributed as promised.
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.
True, but there would be little to distribute pre-AGI anyways and the
"trusted owners" would be "morally" (though not legally) obligated to the
fairest distribution of source code, etc. possible (probably making it open
source). Actually, that's not true, the contribution agreement could easily
be written so that the code etc. goes open source upon dissolution.
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,
If you're waiting until the end to distribute shares/equity, the immediate
tax liability is nasty because it is counted as a sudden transfer of value.
The return, however, if the shares/equity were sold immediately is exactly
the same as if they owned it all along. If, however, ongoing profits are
simply distributed (instead of equity), there is no problematical sudden
transfer of value. And realistically, there aren't going to be profits
pre-AGI.
never mind the unpleasant scenarios that can occur.
Which is the one true bugaboo for which I only have the solution of
"trustworthy owners".
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.
It's not an equity stake scheme. It's a profit-sharing scheme. Equity
implies control and control is problematical.
Can you propose something better that doesn't require guessing what a
person's contribution will be IN ADVANCE.
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.
Do you believe that you could successfully do that? Would you be willing to
write up an initial shot at it?
Mark
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