One of the mistakes I had when forming this company was the lack of formal agreement among the holders. I had issued the shares in full to each member before any of the work had started. I can't stress how stupid this was. I want to warn you, the reader, never to issue shares for your company unless you are certain they are warranted.
One of the problems I faced with holding back shares was lack of motivation expressed by the members. For many months, I was extremely tight with the remittance of the shares. I refused to issue shares with the newly formed company until I was sure we had something going. The problem was I could see that one of the members was no longer engaged with the project. This member was key to the sales and marketing portion of our company.
I thought that it would work best if I could jolt them with some shares. At the time, I had issued myself two shares of the company. This put me at 100%. I had previously offered them 5%, but in a moment of weakness I decided that the remaining unallocated portion of the company should be given to them as well. This brought their shares up to 19%. I proceeded to issue 49 more shares to myself, then 19 shares to the member.
The physical handing out of the shares increased the member's motivation. Shortly after I put the physical shares in their hands, their motivation to help increased significantly. They were so motivated that they were going off on a tangent and heading to another direction for the company. We now had two chefs in the kitchen, which created a whole new set of problems.
I found myself attending many new meetings, created by the motivated member, with other companies interested in big data but not what we were doing as a company.
These meeting became a huge distraction, and eventually led me to sell my shares of the company to this member.
Motivation is a good thing, but make sure you keep it in check. Having a formal agreement in place helps you prevent emotional decisions. If I had the partners sign a "4 years with a 1 year cliff," a share agreement clause, that allows the shares to be vested 25% per year, with a first year of potentially no shares if the founder is removed, I could have waited until the year was complete.[1] This would have given me a chance to remove the members without the need for complication.
[1]http://start-uplawyer.com/start-up-law-glossary/4-years-with-a-one-year-cliff
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Swimming with Asian Sharks - Business Secrets from the Pacific Rim
Non-FictionEver wonder what it takes to do business in Asia? How do Asian business executives behave and think? Do you want to create a business from scratch in under 24 hours? If so, this is your guide. This book is a compilation of over one hundred business...
