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What is the typical way to share profit among different

people in a tech startup...
What is the typical way to share profit among different people in a tech startup, i.e. how much percentage goes to founder, how much percentage goes to sales and marketing, how much percentage goes to research and development, and other departments? Thank you.
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6/17/2017
socrateaser
socrateaser, Attorney
Category: Business Law
Satisfied Customers: 39,370
Experience: Retired (mostly)
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Hello,

Typically, the founder(s) hold at least 51% of the outstanding shares of the corporation, and there are no profits. Tech startups don't make any money. They just burn cash, and the founders usually work regular jobs in addition to the startup as a means of earning a living until the startup either starts to generate enough revenue to pay salaries, or it acquires some venture capital to permit it to start hiring personnel.

A tech startup is all about R&D and S&M. Everything else is way down at the bottom of the list of issues.

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Customer reply replied 5 months ago
Thanks for the answer. Let's say a tech business (C Corporation) that makes profit, what is the typical ways to share profits among people? Is it depends on the number of shares the people have? What is the shares mean if they are not related to profits? Thank you.

A C corporation can only share profits through salary increases, dividends, stock options, restricted stock purchases, stock participation programs, etc. Practically all tech startups are looking for the day that they "go public," so accumulation of shares of common stock is the perk that everyone wants most. Distributing profits through dividends while the organization remains private is practically unheard of in the tech industry.

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Customer reply replied 5 months ago
Thanks for the helpful answer. I see. So 'accumulation of shares of common stock is the perk that everyone wants most'. So, how to decide how much shares to give to different people? I hear CEO typically get 15%? What about sales and marketing, research and development? I think you said typically founder get %51? Thank you.

The founder(s) collectively need to hold 51% in order to maintain control over the organization before it goes public. That's fundamental to the nature of any startup business. For nonfounders, stock is a negotiating tool. For example, if you need a guru that understands how to develop algorithms for a quantum computer, or someone who knows how to design a neuromorphic semiconductor. then you're probably going to need to distribute a fair amount of stock to that person.

If you're hiring an HR person, then they will be happy with whatever you offer, over a salary, because no one else is going to give them a better deal. And, for someone in between, such as a great salesperson/marketer, you'll have to negotiate to bring them on board. There's no standard deal, because the abilities of your target employee makes a big difference in what you may want to offer.

I hope I've answered your question. Please let me know if you require further clarification. And, please provide a positive feedback rating for my answer (click 3, 4 or 5 stars) -- otherwise, Justanswer retains your entire payment, and I receive nothing for my efforts in your behalf. Note: If you cannot find the rating button on your webpage, please just type in your rating in a response to this note, and customer service will apply the rating for you.

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socrateaser
socrateaser, Attorney
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