An innovative approach to equity in a new business

Seth Godin has a pretty innovative approach to how to allocate equity in a new business. His suggested approach represents a stark departure from the usual approach which looks at how to divide up 100% equity in the business. It also represents a challenge to lawyers who would have to capture such an arrangement in an agreement between the parties.

One reason why this represents a challenge is that often a party’s stake in a business as a member (in the case of a close corporation) or a shareholder (in the case of a company) is proportionate to that party’s interest in the underlying legal entity. In other words a 50% member/shareholder often holds 50% of the equity and exercises an appropriate degree of influence over the business’ affairs. Notwithstanding the challenges, this approach seems more sustainable because it caters for changing circumstances which perhaps should, in turn, affect matters like how much equity the parties hold over time.

(Thanks to Matthew Buckland for the link)

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