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It was proposed today, that I become COO of a GPS software

company. Three stipulations 1. They...
It was proposed today, that I become COO of a GPS software company. Three stipulations 1. They are asking me 50K, (skin in the game) 2. I will be 5% owner 1st year and 10% 2nd year. 3. They will pay me 1,000 a week to work as COO. Potential or Problem?
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Answered in 20 minutes by:
11/7/2013
Richard - Bizlaw
Category: Business Law
Satisfied Customers: 10,703
Experience: 30 years of corporate, litigation and international law
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Richard :

Hello, my name isXXXXX will try to help you. Please remember I just report or interpret the law, so the outcome may not be what you hoped for. what is your view of the company? How much capital does it have. I will be back in half hour.

Customer:

In viewing the business plan of the company, there is approx 400K. with potential of competing globally.

Richard :

Only you can evaluate the potential of the company. However, there are some other things of which you should be aware. If you are putting up $50,000 and receive 10% they would be valuing the company currently at about $450,000. Since your $50,000 would entitle you to 10% immediately for what reason does it only buy you 5% the first year? What happens if you leave after one or two years, do you get your money back or do you remain a shareholder? Is there a shareholder agreement that governs the operation of the company? If so what are its terms? Do you have an employment contract or are you an employee at will? An employee at will can be terminated at any time with or without cause. If you were not working for this company would you invest in it? If not you would want protections in your employment contract that you could only be terminated for cause. These are the issues that need to be considered. With these things in mind do you have specific questions I can help you with?

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Unfortunately I just learned that you could not see my response and rated me with bad service. I have switched the format from chat and hopefully you can see the response. In order to properly respond I need the answers to the questions I had. After I respond I would request that you reconsider your rating as I have not had a chance to provide an answer.
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Customer reply replied 4 years ago


Your answer was very helpful for the hugh decision I will make. The company is valued at approx. 1 to 2M. I have been involved mostly as an advisor. It does need a skill set such as mine to go to the next level. Should I wait until company has signed contract.

When you say signed a contract, do you mean the contract with you or with a customer?
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Customer reply replied 4 years ago


yes, an agreement that the product has been purchased.

If you are about to launch a product, I assume that your services would be required in preparation for the launch. If you have the flexibility to start shortly after the initial sale and your real work would not start until that time you could negotiate your contract and the terms of your stock purchase but the investment and your commencement of work would start at the first sale. My experience is that in most cases the key members of the team need to be in place before the first significant customer will order. There are enough hurdles to get over in getting the first sale without also convincing them that one or more key players who are needed to meet the company's obligations will not join until after the sale.

With respect to the stock purchase, it sounds like you are being offered some initial stock and then having your stock interest increase. If that is the case you want to be sure to make the section 83 election so that the additional stock will not generate income when it is issued.

I hope the foregoing information has been of help. If you have additional questions let me know. If you want to look more in depth at your specific situation you can use additional services. Additional services are priced based on the additional work and involve more direct communications with me that are not on the site or open to the public.

If I have answered all your questions, please positively rate my answer as that is how I receive credit. If you have more questions, please let me know. If the answer was especially helpful you can provide a bonus.
Richard - Bizlaw
Category: Business Law
Satisfied Customers: 10,703
Experience: 30 years of corporate, litigation and international law
Verified
Richard - Bizlaw and 87 other Business Law Specialists are ready to help you
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Hi Michael I was just following up to see how you made out. If you have any additional questions or I can help on a different topic let me know.

Richard
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Customer reply replied 4 years ago

I need to have a contract, so decided to meet with an attorney next week. The information you provided will be helpful for me to reference during the meeting. The contract will address the 10% stock, the base salary as a consulting COO, the cost and method of payment of my share, protection of my investment of 10% if I depart early, being terminated for cause, this what I remember from your advise.

You have it right. Good luck and if you have more questions just ask for me, Richard Good luck
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Richard - Bizlaw
Richard - Bizlaw
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