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How much equity should I offer to a CEO cofounder?

I run an eSports local business and future plans are very different from the current model. I am looking for a CEO cofounder who will match my vision and execute the plans. The startup shall have more professionals who will manage sub-businesses like Sales, and Core gaming. I am planning to offer the cofounder milestone-based equity but how much should I offer to him? Should this be less than 20% or 20% is okay or more.

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Hi Anil. That is up to you, keeping in mind your board of directors' guidelines, the local market custom, cultural factors, and so on. The CEO could be treated as a partner or a high quality /paid employee. In any case you need an strong incentive, tied up to business performance, if you want to attract or hire an important businessperson or executive. Wish you the best.

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Your equity arrangements as well as many other important factors will evolve by developing a business plan and an operating agreement as a team prior to registering the company and its owners with your government or adding your prospective partner as an owner.

In short, develop a vision together of the company and its operations and agree on your respective roles it it. The ownership shares should be a fallout of that process to be meaningful, realistic and successful.

Then develop an operating agreement. It should be a simple, straightforward document you and your prospective partner can draft yourselves, addressing such matters as % of ownership, how revenue will be distributed and other general matters, as well as who can commit the company in the form of credit cards, who signs checks on the company account and other administrative matters. Buying out a partner should also be covered.

I have seen many enterprises fail or go through terrifically hard times due to lack of an operating agreement. The parties should sign it after a review by a lawyer. It should then be notarized and made an official part of the company file.

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