Legal Question in Business Law in New Jersey

You instinctively asked the right questions and I commend you on that. Indeed the dangers of your future partner leaving the company prematurely, even if he meets all of his milestones, will without doubt cause some havoc. One way to balance your concerns with his legitimate need to be compensated properly is through a grant of restricted shares (or restricted membership interest if it is a LLC) In fact using restricted equity may also significantly reduce the taxes that your future partner may incur when it's time to sell his equity.

Unfortunately restrictive grants of equity require detailed agreements that include a vesting schedule and/or fully fleshed description of the milestones and also enumerate provisions such as management and control, anti dilution, rights of refusal or tag along rights. Though detailed agreements can be tedious and often involve lawyers, many of my clients report that having a detailed agreement benefited them and their counterparts since both parties knew what their expectations were and the benefits they would be getting if they met the expectations.

If your company is of significant value or is your main source of income, I highly recommend that you consult with an attorney before you give a chunk of it away.

If you have any additional questions feel free to contact my office at your earliest convenience.

Roman R. Fichman, Esq.

www.TheLegalist.com │ @TheLegalist

email: Info (at) TheLegalist (dot) com

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I question whether it is necessary or even appropriate to give this person an ownership interest in the company at all. If his earnings are based on a formula that depends something else than his company percentage ownership, it looks more like an employment relationship. Partnerships and limited liability companies are very flexible arrangement and many things can be done with them. You question as to whether the proposed arrangement is wise, is a good one. If you would like to discuss the matter further, feel free to call.

See also: http://info.corbettlaw.net/lawguru.htm