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Contract Management: How can I structure a contract to bring on a co-founder to help my business when I can't pay them?
DO
DO
Damon Overboe, Leader, Developer, DevOps admin answered:

I would suggest reading "Slicing Pie" by Mike Moyer. It may not be for you but it will at least shed some light on some of the pitfalls you may encounter so you can form your thoughts and approaches for how to handle those.

It's a quick read and lays out a simple, transparent formula for calculating equity, valuing cash vs sweat equity, and sets up a system that keep it fair and protects all parties involved.

One example the author raises is that you have no way to know how much effort your new partner will put in; will they give up after 3 months? If you gave them all of their equity up front, or a disproportionate amount, what incentive do they have to keep helping the business grow? Or what happens if some family emergency or need impacts your ability or their ability to contribute. How do you make that fair?

I personally like the approach he lays out. I have used it on one business only. That business ended up not going anywhere, but no one felt slighted. I'm not using it in my current businesses but I do use some of the concepts.

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