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Small Business Resources
I have been running this show on my own. I have found someone who has great talent and don’t want to lose her. A friend suggested I give her shares, but I’m not sure if I’m comfortable with that. What do you think?There are a lot of considerations to take into account before making such a leap. Whether it is shares or a partnership, when you run your own business, there can be large impacts from opening up ownership. The fact that someone has technical talent does not necessarily mean they have the skills necessary to own a business. Do they have the same values as you? Do they share your vision for the business? Will they assume a level of responsibility that one would expect of an owner? The first thing to ask is “What is your objective?” Second: “What is her objective?” Third: “What alternatives exist to the proposed share split?” If your goal is nothing more than securing loyalty, then before jumping into a permanent split of your equity, find out what will, in fact, secure that loyalty. In my experience, people frequently ask for equity because they haven’t considered alternatives. Often, what they really want is the ability to share in profits to which they have contributed, but believe equity is the only way of achieving that. So, your first step is to find out what she wants. If she says “equity”, dig a bit deeper. Does she really want the liabilities and responsibilities that go along with being a director and owner? If not, then you can likely make arrangements to provide a profit allocation as long as certain performance requirements are met. If not, recognize that there must be a valuation of the business and a valuation of the individual’s contribution and a number of other steps that are outside the scope of this article. If you must do an equity split, be sure to consult your accountant and lawyer BEFORE you offer or agree to anything.
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