Big News: FounderDating is joining OneVest to build the largest community for entrepreneurs. Details here
Latest Notifications
You have no recent recommendations.
Name
Title
 
MiniBio
FOLLOW
Title
 Followers
FOLLOW TOPIC

Question goes here

1,300 Followers

  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur

What legal documents are needed to hire engineer that is paid in sweat equity?

I was wondering what documents I need to be able to hire an unpaid engineer that will be compensated in Vested equity and that most likely working remotely. Including intellectual property rights,etc.. I'm not sure what to classify them as unpaid intern or unpaid employee,etc..

I stated to them that I need help on building MVP and if we get investment then salary can be possible. Also to potentially hire them full time if they choose to do so, And I got numerous responses since they want to be part of something and can consider this as a side project until I get investment that they can take the risk to be fully on board.

What documents is needed and where would I find them?

also Any suggestions on project management software, tools to make sure technology is protected and backed up (from coding,etc..) I'm not too familar with github and how that works in regards to protecting IP


FYI I"m located in NY some of the potential engineers are located in NY, Delaware, Virginia and Boston. .


19 Replies

Graham Wert
1
0
Graham Wert Entrepreneur
Co-Founder & CTO at ZenQMS and Mixette
Typically this type of stuff would be covered in an operating agreement. It sounds like you're trying to run pretty lean right now, so hiring a lawyer to help with an operating agreement could get expensive. I suppose you could do it cheaply by starting from a template or using something like LegalZoom, but typically you pay for what you get.

You'll also probably want to be careful not to run afoul of any labor laws. In most jurisdictions in the US, anyone that can't be classified as an independent contractor must be paid at least the minimum wage. I'm not sure if listing someone as a shareholder in an operating would cause problems with that. I believe the only exception to paying minimum wage in many jurisdictions is if the employee has a stake of X% in the company (where X is something like 20%).

Of course, if you really trust the people you're working with/hiring, you could get by on a handshake deal for a little while until some revenue or investment money comes in. I've done this a couple of times in the past myself, but there's always more risk in doing that way.
Neil Licht - HereWeAre
5
1
Want To find-close Business Online without competition Before They Google Search? We solve this problem 1(508)-481-8567
It amazes me how startups believe that they can actually "hire" needed talent for "equity" and the best of the best will jump at the chance.

"Equity" as the only compensation offered, in reality, means zeropayment of anything spendable or as usable income until and if the company goes public or is sold.

If you even want to get to that stage, PAY for the talent that can get you there and that'scash plusstock/equity, not just plain equity for "sweat equity".
Asnee Fernando
1
1
Asnee Fernando Entrepreneur
Cause-integrated Innovator & Entrepreneur,Founder & CEO of Shoptaki
Thanks Graham for you answer, really appreciate it. I have been looking at templates but figuring out how to vest actual stocks and not stock options.

Neil Licht: in regards to your response, If i had the money I would pay for the talent, but I wasted my money on incompetent developers overseas and learned a valuable lesson. I prefer to retain as much equity as possible, but instead looking for potential partners who would help make my vision a reality.

Any company that is starting out doesn't pay themselves or their partners until they get some investment or has launched and making some profit. Hence the reason Entrepreneurs bootstrap as much as possible and find like minded people to join them to create something great. They take the RISK knowing they can contribute to making company and themselves successful and if it fails they have the experience. so even The best of the best if they believe in the concept and wants to partner in some entrepreneur's project that is up to them based on if they believe in it and want to be part of it.

You can't assume that I or some other start-up are just wanting free work, instead its more of building a team and making sure they are well taken care of, and if it succeeds they are well financially taken care of. That's one of the points of a startup to be able to build a team that can eventually grow into a big company.


Graham Wert
0
0
Graham Wert Entrepreneur
Co-Founder & CTO at ZenQMS and Mixette
If you're incorporated as an LLC, something like this might be an option:

https://www.nceo.org/articles/equity-incentives-limited-liability-company-llc

In the LLC operating agreement, you can also define different classes of "units" or membership interests (e.g. Class A units have voting rights while Class B units do not). It's probably a lot more complicated with an S corp or C corp.
Asnee Fernando
0
1
Asnee Fernando Entrepreneur
Cause-integrated Innovator & Entrepreneur,Founder & CEO of Shoptaki
I have an S-corp, I did found a site that created a great templatehttps://launch.wilmerhale.com/build/document-generator/

it considered the people as contractors but didn't mention vesting or flat out stocks, just giving stock options. So i might take up on your advice in regards to some handshake deal to give shares but at same time have them sign contract and at give them some stock options for time being, till I get investment to give salary and lawyer to handle the legal work on issuing actual shares,etc.. ofcourse vested .

would their be any additional document I need if i do use that template? (it had the ip protection,etc..) since it mentions based on stock incentive plan and I don't think I have that type of document , just the basics article of incorporation and bylaws.
Sebastian Martinez-Miranda
1
0
Partnerships Activation Fellow at DonorsChoose.org
If you're looking for a source of templates, Doracy (docracy.com) has some solid ones. If you're trying to save on costs but would like to have an attorney draft up some documents, you can also check out UpCounsel (upcounsel.com). They normally suggest fixed rates for certain jobs and often offer free 15 minute consultations to see what you need for the project you are undertaking. If anything, the consultations should help give you a better understanding of what you can/need to do.

With regards with working with a developer to build the MVP, you should have them sign a Confidentiality & IP Assignment Agreement to make sure that all work done/IP belongs to the company.
Asnee Fernando
0
0
Asnee Fernando Entrepreneur
Cause-integrated Innovator & Entrepreneur,Founder & CEO of Shoptaki
Thank you so much Sebastian, this info is really great and thanks Graham for the Advice as well.
Jeffrey Miller
1
0
Jeffrey Miller Entrepreneur
Labor + Employment Partner, Brennan Manna & Diamond LLC
I agree with Sebastian that the important consideration is protecting your IP. You'll want to have theindividual execute at least 2 agreements:a Non-Circumvention, Non-Competition, andNon-Disclosure Agreement; and, a Development Agreement (or Work For Hire Agreement). You also may want to check with attorneysin each state for any issues with consideration for the agreements, and anyquirks in employee vs. independent contractor evaluations. The equity portion is the easiest (back of a napkin).
Steven Corn
0
0
Steven Corn Entrepreneur
CEO at Metis Advantage
Jeffrey is spot on. You need to own all the rights to the work being done. A work for hire agreement and a good NDA/Non... agreement is absolutely necessary. However, the work for hire has to acknowledge some exchange of real consideration. Equity that is possibly worthless may not qualify. So I would suggest a small stipend payment with the equity will cover you sufficiently.
Michelle Yagelski
0
0
Michelle Yagelski Entrepreneur
Business Development Professional, Fearless Achiever, Game Changer
Here are a couple sites I've found useful that provide free startup docs..

STARTUP 101: "OPEN SOURCE" START UP LEGAL DOCUMENTS:
http://www.vccafe.com/2012/06/18/startup-101-open-source-start-up-legal-documents/

free access to the Founders Toolbox:
http://www.foundersworkbench.com/

http://siliconhillslawyer.com/legal-tech-startups/

Good Luck!
Join FounderDating to participate in the discussion
Nothing gets posted to LinkedIn and your information will not be shared.

Just a few more details please.

DO: Start a discussion, share a resource, or ask a question related to entrepreneurship.
DON'T: Post about prohibited topics such as recruiting, cofounder wanted, check out my product
or feedback on the FD site (you can send this to us directly info@founderdating.com).
See the Community Code of Conduct for more details.

Title

Give your question or discussion topic a great title, make it catchy and succinct.

Details

Make sure what you're about to say is specific and relevant - you'll get better responses.

Topics

Tag your discussion so you get more relevant responses.

Question goes here

1,300 Followers

  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
Know someone who should answer this question? Enter their email below
Stay current and follow these discussion topics?