McStartup

John writes:

I have a question/problem. I am in the research phase of starting a business I have approached 2 others that I would want helping out and being owners with me.

Problem, I plan on setting up a s-corp and would like to maintain over 50% stake in the business. The other two guys I spoke with feel like it should be a equal split. How can I convince the other two guys that I should get the majority share and they split the other half?

I have a feeling you are getting a bit ahead of yourself in terms of picking the business structure and worrying about the 50% ownership thing. Generally I don't recommend people choose S-Corps as their business structure. There are situations where it makes sense, but in 95% of cases, either an LLC or a C-Corp is the way to go. If you have a specific reason for picking an S-Corp I could probably lend an opinion on that.

As for the ownership -- there are about a thousand ways to maintain control even if you give up more than 50%. You could control the board of directors. You could have a different class of stock than the other folks. Or, you could have shares while they hold options. In any case, I would strongly recommend that your partners (and you) either take options over shares, or if you must have shares, then enter into a restricted stock agreement that lifts over time (and thus vests like stock options).

This is how you can protect yourself from getting engaged with someone who doesn't work out, quits, or goes insane. If they have stock and walk away, then there's nothing you can do, unless there is an agreement in place that addresses that situation ahead of time.

I've written a couple blog articles about those topics in the past. You should probably check out this post about structuring ownership in a new company, and this one about choosing a C-Corp or an LLC, or an S-Corp. When you do pick your business structure, you can probably get some free advice from an attorney (who will then make money when you do the actual business formation), or you can also get a lot of great advice and help to form a business on your own from LegalZoom.

Here are a few links to legal information regarding the various structures:

Legal Zoom's Business Formation Page | LLC's | Corporations | Sole Proprietorship | DBA

Please do pay special attention to the equity structuring. I've seen far too many cases where people get screwed because a partnership doesn't work out and someone walks away with a big chunk of the company. It can only get ugly from there.

Good luck!

Follow me on twitter.