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Old 11-29-2007, 11:53 AM
gaming_mouse gaming_mouse is offline
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Default How does equity work in a new company?

Say 3 people are beginning a new company. At inception it is simply an idea. Two partners, Resource1 and Resource2, are considered more valuable because of the skills they are bringing to the company and the work they will do in the future. A third partner, Money, will be putting up most of the money.

They decide that the following equity distribution in the shares of the new company will be as follows:

Money -- 20%
Resource1 -- 40%
Resource2 -- 40%

In addition, each partner also puts up money for the company's operating costs, as follows:

Money -- 100
Resource1 -- 50
Resource2 -- 50

My question is (and there may be more than 1 "standard" answer -- please let me know if that is the case), how much money each person would get in the following scenarios.

Scenario 1 After 6 months of operation, half the company funds have been used up, and all partners make a decision to dissolve the company and receive their fair shares of what is left. So what are those fair shares?

Scenario 2 After 6 months of operation, company profits = company losses, so the company has its initial 200 still intact. They decide to dissolve. What is each partner's fair share?

Scenario 3 After 6 months of operation, the company has profited 200, so the company has 400 in assets. They decide to dissolve. What is each partner's fair share?
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