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What's a good agreement to use between three indivduals in a Corp start up?

We are three individuals who are providing sweat equity and cash to launch an OTT channel. Our start up attorney provided a "Master Services Agreement." It's a bit boiler plate. While I want to be exacting in responsibilities, this "MSA" is almost agressive in its tone and not how I want to start off a new company with its founders.

Does anyone have experience with another document that is more "friendly"? There has to be something out there which provides a decent level of security for all parties but keeps the spirit moving forward.

Many thanks for your insights and assistance.




22 Replies

Terri Friel
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Terri Friel Advisor
CEO Doctus and Member International Advisory Board of Cracow School of Business CUE at Cracow University of Economics
You can have a lawyer draw up a collaboration agreement that includes clauses for dissolution, how to share the revenues and expenses etc. I had one done and use it for several collaborative agreements currently. It can be done as a master/blank with details to be filled in by the parties involved.
Alf Poor
1
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Alf Poor Entrepreneur
Chief Operating Officer at Global Data Sentinel
Sounds more like you need a partnership agreement, if you're all putting cash and sweat in for equity. One assumes you're all equals?
Joe Albano, PhD
2
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Joe Albano, PhD Advisor
Using the business of entrepreneurialism to turn ideas into products and products into sustainable businesses.
As a NON-LAWYER,here is one way to think about it:
  • The MSA is your "legal backstop" that is the LEGAL requirement in case the wheels completely fly off the bus and one or more of you decide to start throwing lawsuits around.
  • I have found it useful to have a documented agreement (not necessarily a formal contract) that specifies 6 different aspects of how you will work together:
    1. Relationship - how will you interact with each other and keep each other informed?
    2. Results - what result(s) are each of you responsible for producing?
    3. Rights - who gets to be involved in each kind of decision? In what way? What happens if someone disagrees with a decision?
    4. Rewards - how will the assets of the organization be reinvested and distributed?
    5. Risks - what risks is each individual assuming? what mechanisms will you put in place to mitigate risks?
    6. Remedies - how will you deal with disagreements (short of resorting to your "backstop") as they arise?
This is just a brief overview of what we call the While We're Still Friends Conversation.My clients have found it useful and I hope you will too.
Irwin Stein
2
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Irwin Stein Advisor
Very experienced (40 years) corporate,securities and real estate attorney.
Stop being naive. A good agreement between 3 partners in a start-up should cover likely contingencies, especially the likelihood that the 3 of you may add others down the road or split up. A common scenario is that one of the 3 gets divorced and the spouse makes a claim on that person's shares. I actually have a problem with one lawyer representing all 3. even though i am a lawyer, I always had another lawyer watch my back whenever I got into a long term relationship with business partners. The work may be equal but people are always different. More partner's utter the phrase "you are not pulling your weight" than "what are you going to do with your share of the millions that we sold the company for?" That these people are your friends is great, but they are also your partners. What you don't cover up front may effect the business and the friendship later on.
Mike Moyer
0
0
Mike Moyer Entrepreneur • Advisor
Managing Director at Lake Shark Ventures, LLC
Use a Slicing Pie agreement. Slicing Pie is a universal model for accounting for cash/sweat equity splits that guarantees a perfect split no matter what changes occur over time. ALL other equity models cause problems.

There are a number of attorneys who do these. A couple are listed on SlicingPie.comand there are templates available that make it easy. If you're not US based I can put you in touch with someone who can help in your country.
David C. MSE
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David C. MSE Entrepreneur
CEO at Business Development

I agree 100% with Steve. You better be aggressive and detailed. Quite honestly, if your attorney did not advise you to each seek separate attorneys, I would probably find another. A responsible lawyer would have advised this. Treat your company like it will be worth $100M or $1B one day.


I too see a lot of founders who are extremely "Naive" to use to Steve's word. It is also very nearsighted to use a "non formal" contract. It's business, and a contract better be aggressive and detailed. It's not personal, it's business. I would seek for far more than "Decent level of protection."


I'm sure Steve can give more examples than any of us. But I have a colleague who took your approach. He actually also had two other partners. They had a loosey goosey non formal contract in place. After a few years of building the company...one founder had long stopped pulling his weight, another had gone another route. Long story short an IPO later, one walked away with about $200M, one over $300M, and the founder who stuck with it around $20M. Business is business. Everyone is friends in the beginning. And the best way to remain friends is to cover as many details up front with a detailed and formal contract.



The souse scenario is great as well.

David C. MSE
0
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David C. MSE Entrepreneur
CEO at Business Development
As a clarification, all the non formal discussion is valid for sure before you start putting cash and major sweat equity into your venture. You obviously don't want to sit down and start going through long form contracts before your relationship is solidified. But after that, I would be very upfront that for all of your partners protection and the future foundation of the company, you want to have as much in writing and understood as is possible.
James Haynes
0
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James Haynes Entrepreneur
Web Content Writer & Freelance Writer, Local SEO, Mobile App Developer
I could not agree less with some of the other posters here. (Have separate attorneys? Um, no.) Let's face it, the odds of you making it are minuscule. Sorry, but those are the facts, there is 90%, 95% chance you'll fail. You don't need lots of onerous rules and strict language. You need buy-in, energy, commitment. Without that...well, 100% of nothing is nothing. Make it flexible, and agree to reassess as you go.

This partially explains why I believe the "slicing pie" model doesn't work for many different companies as well. Everyone on our team has a full time job, a spouse, numerous children. We aren't going to make a dime off this for at minimum 1 1/2 years, maybe more. I'm asking these people to put in time after a 45+ hour week, without pay, to work on our project at midnight on a Tuesday. What's that worth? For me personally, I'm MORE than happy to give away much larger %s of this "company" than these others would advise. (until you make money, and a sufficient amount, it's not a company....it's an idea)

I'd rather own 20% of a project that actually turns into a business...because a group of other people bought-in as much as me and worked their as*es off for a significant chunk of the company.

Mike Moyer
0
0
Mike Moyer Entrepreneur • Advisor
Managing Director at Lake Shark Ventures, LLC
Hi James,

You said, "Make it flexible, and agree to reassess as you go."

Then you said, "This partially explains why I believe the "slicing pie" model doesn't work for many different companies as well"

Um, are you sure you understand the Slicing Pie model?

Slicing Pie is the world's most flexible equity model that gives teams an automated way of reassessing the split over time and specifically takes into account this thing you also said: "Everyone on our team has a full time job, a spouse, numerous children. We aren't going to make a dime off this for at minimum 1 1/2 years, maybe more. I'm asking these people to put in time after a 45+ hour week, without pay, to work on our project at midnight on a Tuesday."

What you described is the exact reason that Slicing Pie works so well! I'm not sure I can even come up with a more perfect case for Slicing Pie.

I'd be happy to share a copy of my new book!

-Mike

David C. MSE
0
0
David C. MSE Entrepreneur
CEO at Business Development

James, there are a multitude of reasons for having separate attorneys. This is seriously Law 101 and taught in the first weeks of entrepreneurial law because of its importance and common sense. I would encourage you do your research not to prove any of us right or wrong in a forum, but for your own well-being and that of your company. Since you have given yourself a 95% chance of failure, perhaps it does make sense to not spend money investing in an attorney and preparing a detailed contract.


I understand completely your point about just moving things forward. I'm sure everyone here hopes if you do have success you do not have any issues. However, every entrepreneur who did end up with success and unforeseen problems with his/her cofounders initially took your approach. I have a colleague who has overseen $10B in transactions in various industries as an attorney. His number one response as to why companies end up in costly lawsuits is that detailed contracts were not prepared in the beginning. I don't get any thrill out of that being a reality. It's quite sad that people are not more trustworthy.


There are stories of people who did contracts on napkins and had success and it all worked out fine, just far more that failed unfortunately. People are people. If that works for you, go for it! Personally, I would put better odds in my favor for success, and greater odds that being detailed and prepared for that success is a worthwhile investment.

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