As the wave of startups continues to heat up, many entrepreneurs are entering into companies without asking the right questions. Often, they don’t know what questions are absolutely critical in order to move forward on solid footing. Sheheryar Sardar at New York City’s startup focused law firm, SLF, sat down and pulled together the3 top questions co-founders should ask.
This comes down to the basic architecture of ownership: who own’s what percentage of the company. Deciding this early on prevents ownership problemsfrom arising as the company grows. The answer is not always easy, because it’s rarely ever going to be divided equally down the middle. So have the hard conversations.
This is another difficult question, because: (1) no startup co-founder wants to admit that they would leave; and (2) it’s hard to imagine why anyone would want to leave an innovative idea. The unfortunate truth is that it does happen, and it happens often. In fact, it’s better that a co-founder that is not fully committed to the startup takes his/her leave instead of holding the company back. Map out the steps that can be taken if a co-founder decides to exit.
Even though co-founders may not be drawing a salary at the inception of the company, there should always be a plan for when salaries will be drawn and how much each co-founder will get paid. There should also be a frank discussion about who can change compensation, and when compensation can be increased/decreased. This should include salary, benefits, commission, etc. The more thorough you are at the outset, the less ambiguity will exist years from now.