Category: Slicing Pie

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Cortando el Queque

by Sentient

Cortando el Queque

  1. Justicia es divertida
    1. Todos comienzan en la misma página
    2. La transparencia genera confianza
    3. Creación de equipos
    4. Motivación derivada de la igualdad de capacidad para obtener equidad

Ejemplo: La fundadora y líder de los Grunts, Jane Egon, es e

mpleada a tiempo completo en Big Tech Corp. Un día, una gran idea se ocurre a Egon para una nueva aplicación de widgets tecnológicos para compartir fotos que cambiará el mundo de las aplicaciones para siempre.  Egon pasa aproximadamente 1 hora por día hábil durante un año investigando su mercado y finalmente decide organizar una nueva empresa.  Egon es sola una gerente intermedia, por lo que no puede permitirse contratar empleados o contratos independientespara hacer realidad su sueño.  Egon busca formas de recaudar fondos y justo cuando está a punto de perder la esperanza se encuentra con el libro Slicing Pie. “¡Finalmente una solución! Esto es brillante”, piensa Egon.

Egon es muy apasionada y persuasiva sobre su visión y por eso no tiene problemas para comunicar su idea de manera efectiva a cuatro empresarios tecnológicos experimentados a quienes convence para que se unan al equipo como Grunts A, B, C y D. Debido a que a Egon se le ocurrió la idea, Egon optó por aislar 51% del capital para sí misma para mantener una participación mayoritaria en la nueva empresa y no participar en el Fondo Grunt. Los cuatro grunts trabajan por una tarifa de recursos por hora de Grunt de $150 / h.

Debido a que su trabajo se volvió estresante y ya posee el 51% de la empresa, Egon dedica aproximadamente 1 hora por semana durante el año a recaudar una ronda semilla de capital.  Egon convence a un amigo rico para que contribuya con $500,000 por el 20% de la compañía y se produce la división del Fondo Grunt.  Egon y los Grunts comparte del capital de la compañía en el momento de la división del fondo Grunt que se desglosa de la siguiente manera:

Egoísta

Tarifa de recursos por hora de Grunt:            N/A

Entradas individuales:                                     N/A (honorarios legales pagados y tarifa de organización llc)

Cuota de miembros:                                       51%

Grunts A, B, C y D

Tarifa de recursos por hora de Grunt =          $150/h ($75/h x 2)

Aportes de los miembros:                              1043.5 horas ($156,525.00 valor por Grunt)

Total de entradas:                                          4,174 = ($626,100.00)

Cada acción de miembro:                               12.25% (Nota: 49% de la compañía está sujeta al Fondo Grunt)

 

En el ejemplo anterior, cada uno de los Grunts tendría derecho a un pago de Renuncia por Buena Razón de $156,525.00. Debido a que Egon solo recaudó $500k, la compañía no puede pagar el valor Renuncia por Buena Razón de cada Grunt. Si cada Grunt hubiera recibido una compensación durante la existencia del Fondo Grunt en lugar de participar en el Fondo Grunt, cada Grunt habría recibido $75/h o $78,262.50 en total. Debido a que Egon aisló el 51% de la propiedad para sí misma, cada Grunt recibe una participación diluida del 10% en la compañía recién financiada y la propiedad se desglosa de la siguiente manera:

 

Valoración post-dinero:                                  $2.5 millones ($500,000.00 / 20%)

Valoración pre-dinero:                                    $2 millones

Valor de las acciones del inversor:                 $500k o 20%

Valor de las acciones de Egon:                        $ 1.02 millones o 41%

Valor de propiedad de Grunt:                         $240k o 10%

Aunque el ejemplo anterior podría no verse tan mal a primera vista, recuerde que Egon apenas contribuyó a la construcción de la empresa, sin embargo, todavía posee un interés mayoritario después de una inversión de $500,000 y 4,174 horas de trabajo de Grunt.  Para obtener una mejor imagen, considere este escenario con Egon haciendo un GHRR alto sin las garantías de capital. En el siguiente ejemplo, Egon está contribuyendo al pastel en la cantidad de 261 horas por año a un GHRR de $350/h.

Egoísta

Tarifa de recursos por hora de Grunt:            $350/h

Aportes de los miembros:                              522 horas ($182,700)               

Gruñido A, B, C y D

Tarifa de recursos por hora de Grunt =          $150/h ($75 / h x 2)

Aportes de los miembros:                              1043.5 horas ($156,525.00 valor por Grunt)

Totales a partir de la división de Grunt Fund

Total de entradas:                                           $808,800 (4,696 horas)

 Participación de Egon:                                    22.6% ($182,700 / $808,800)            

Grunt Shares:                                                  19.4% ($156,525.00/$808,800)

Valoración pre-dinero:                                   $2 millones

 

Después de la división de Grunt Fund

Valoración post-dinero:                                  $2.5 millones ($500,000.00/20%)

Valor de las acciones del inversor:                 20% ($ 500k)

Valor de las acciones de Egon:                        18.0% ($450k)

Valor de propiedad de Grunt:                        15.5% ($ 387.5k cada uno)

  1. Atracción de talento
    1. Rendimientos decrecientes
    2. Incapacidad para ampliar el equipo

El impacto financiero solo comienza a contar la historia de cómo Egon ha afectado negativamente a la empresa.

En las semanas antes de la inversión de $500,000, la motivación de los Grunts comenzó a calmarse. A pesar del arduo trabajo constante de los Grunts, el interés protegido de Egon creó un techo verdadero. Cada uno de los Grunts se opuso a trabajar largas semanas por poca ganancia, mientras que Egon solo trabajaba una hora a la semana para mantener su interés.  Egon fue muy afortunada de recibir fondos cuando lo hizo porque los Grunts probablemente habrían dejado de trabajar, o solicitado una enmienda del Fondo Grunt, si sus contribuciones hubieran seguido perdiendo valor.

Además de los problemas de contribución de los Grunts, el capital de Egon impidío que la compañía creciera. Las demandas de la compañía se expandieron y Egon necesitaba adquirir más capital humano. Idealmente, Egon quería traer a otro Grunt; sin embargo, no podía traer un nuevo Grunt sin lastimar a los Grunts en su conjunto. Un nuevo Grunt significaría que cinco Grunts, no cuatro, estarían dividiendo el 61% del capital de la compañía, como máximo. Basándose en el egoísmo inicial de Egon, ahora debe elegir entre el crecimiento de la compañía y la moral de los Grunts.

  1. Posibles consecuencias comerciales
    1. Responsabilidad legal por actuar de mala fe
    2. Caracterización de los empleados
    3. Daño irreparable para mantener el equipo en el futuro

Los líderes de los Grunts que alteran el modelo de fondo grunt para aislar porciones significativas de capital de la participación en el Fondo potencialmente se exponen a responsabilidad legal. Cuando un Líder Grunt confiere beneficios a expensas de los Grunts, un tribunal puede exigir al Líder Grunt que haga una restitución a los Grunts para evitar un enriquecimiento injusto del Grunt Leader.

Las alteraciones al modelo del Fondo de los Grunts que hacen que la relación Grunt Leader-Grunt se caracterice como una relación empleador-empleado puede ser una violacion de la ley laboral. La falta de pago del salario mínimo y las horas extraordinarias son las violaciones más probables a las que se enfrenta un líder de los Grunts en estas circunstancias. Las sanciones por estas violaciones incluyen: pagos atrasados, daños liquidados, multas de $1,000 por cada violación y honorarios de abogados y costos judiciales.

En resumen, el modelo del Fondo de los Grunts fomenta la creación de equipos saludables y la colaboración a través de los principios de equidad incorporados en el modelo. Cuando el Líder de los Grunts se reserva grandes porciones de capital para sí mismo, compensa injustamente al Líder a la expensa de los Grunts. Este desequilibrio erosiona la moral del equipo y crea los mismos problemas que el modelo del Fondo de los Grunts se busca evitar, es decir, el conflicto entre los fundadores sobre las divisiones de capital. Este conflicto tiene el potencial de destruir el desarrollo de la compañía y/o causar un colapso del negocio por completo.

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Starting a Business Aged 50 Plus

by Sentient
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Setting up a business when you are older can seem like a crazy idea. Friends and family might even tell you that. But there are some real pros to being an older person and setting up a business, as long as you have the dedication to keep going with it. Here we will give you the lowdown on starting a business aged fifty plus.

That One Big Idea

If you have that one big idea that you have been considering for years, why not just go for it? Chances are your idea is brilliant and people will love it. Make sure to check that someone else hasn’t beat you to it. Also don’t worry if they have, adapt it a little give it a new spin and see what you can come up with. It is likely if you have had that idea in your head for many years, it is a good one and what is the harm in giving it a go?

Get Help

A great way to be as savvy as possible is to get some external help you can trust. Come at it from a business perspective. Do not just employ your niece as she made a great PowerPoint once, ensure that you are getting professional help. When it comes to business you know your strengths, but it can be difficult to see your own weaknesses, especially if you don’t know what you are meant to be strong or weak at! On freelancer sites like Fiverr and UpWork, you can hire freelancers to help you write a business plan. This is a great start. Ensure you read over their reviews before entering a contract. You can also get mentored with online business support and coaching, which can be very helpful for new entrepreneurs.

DIY Business

Once you have a plan and know where you are going, you can start to look around for free to use resources to help you set up your business. A brilliant example of this is to create your logo. A business logo does not need to come from an expensive designer nowadays but can come from an online logo creator tool just as easily and without the hefty price tag.

Social networks are a must-have for new businesses. Sign up to them and fill your pages with your branding. There are many socials that when you sign up to them as a business that you can use for free to market yourself to your chosen demographic.

Starting a business when you are fifty plus is a great chance to renew your life, live your dreams and enjoy yourself. It’s also a great way to earn more money before you retire. However, it does not always work out so make sure you are cautious while having fun and don’t invest too much money before you know it is already working!

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Should My Company Issue Stock Appreciation Rights (SAR)?

by Sentient

Why Should I Offer Stock Appreciation Rights?

Two of the most common benefit plans companies offer their employees are employee stock option plans (ESOP) and stock appreciation rights (SAR). While both have unique benefits, for the employer and its employees, there are differences and financial considerations that must be addressed before choosing the right benefit incentive plan for your company. Whichever plan you choose, each method motivates employees to increase shareholder wealth and offers compensation for their hard work and commitment. In this article, we will focus on SAR. Read our article on ESOP to compare options and follow up with business startup expert, attorney, Matthew Rossetti. 

In the know – key terms

  • Grant date is the date that the employer and employee agree to the terms and conditions of a stock option, or equity-based award. Once agreed upon the stock appreciation right is granted to the employee and the date is recorded as such. The grant date also determines the exercise price.
  • Vesting date is the date an employee is eligible to exercise a specific number of options. Typically, starting on the date of vesting to the ending on the SAR’s expiration date, a vested SAR may be exercised, in whole or partially. Prior to this date, no payout will be granted. Note, exercising your rights may be dependent on how long an employee works for the company, employee performance, or based on the overall performance of the company.
  • Expiration date refers to the last day an employee can exercise stock appreciation rights, and only if the market price exceeds the exercise price. However, if the SAR’s market price is below the exercise price, the shares are worth nothing and can never be exercised. Furthermore, If the terms and conditions of the bonus agreement are not met by this date, the employee will lose the SAR.
  • Exercise price is the market price of the stock on the grant date, and the price an employee is able to purchase shares, once options are vested. There is also an exercise period, which is the time in between the vested rights and the expiration date, wherein the employee may exercise their appreciation rights. 

Unpacking SARs

Offering a SAR is a great benefits plan for startups, especially if you are an S-Corp, LLC, partnership, or other business entity that is unable to award stock. A SAR allows a business to reward its employees without exhausting any cash reserves or giving up any equity and they can usually fund the rights through the organization’s payroll system.

Stock appreciation rights are essentially a bonus – usually paid out in cash, sometimes stock, or a combination of the two – to a company’s employees. These bonuses are issued with a grant date, an exercise price, a vesting date, and an expiration date. This type of benefit plan enables an employee to cash-in on appreciating stock prices, after a specified vesting period, between the grant date and the exercise date. However, this payout is only accomplished if the employer’s stock price rises. 

Planning is key

The ability to create a customized benefits plan, structured for the betterment of a business and its employees, is what makes SARs a popular option amongst many businesses looking to incentivize their employees. Depending on how a company is set up, employers have a lot of flexibility when planning because there are few to no restrictions. 

  • Employers have the ability to offer their employees options to exercise their SAR when they choose to.
  • Vesting schedules provide a performance-based retention tool, structured in a way that bonuses are only paid out if an employee lives up to the original terms and conditions agreed to on the grant date. 
  • Predetermined plans can be agreed upon as to what an employee will receive if he/she resigns or is terminated, if anything at all.
  • Non-compete clauses can be implemented into the employer/employee agreement in order to ensure employee loyalty.  
  • Employers can further incentivize top performers by offering some of the net proceeds if the company is sold.
  • Companies that already have an ESOP in place can offer SAR as an additional incentive for its employees.
Caveat

While stock appreciation rights do have their advantages, such as tax deductions for corporations, and no upfront cost to employees to exercise rights, there are a few things to understand in advance. 

  • An employer is required to withhold taxes, either by withholding cash or shares.
  • Publicly traded companies may require shareholder approval when issuing stock appreciation rights.
  • A company may need to follow retirement plan rules if it wishes to cover all employees and offer benefits after termination.
  • Employees will not receive dividends or voting rights.
  • Upon exercising rights, employees must report any income on the fair market value of the amount of the right received at vesting – even if it is a share and is not sold.
  • If employees receive cash upon the sale of the company, it will be taxed as ordinary income tax

When planning, many decisions must be made carefully and strategically. Employers must consider vesting rules, liquidity concerns, eligibility, rights to interim distributions of earnings, tax implications and so much more. It is always advisable to discuss any plan to issue SARs with a knowledgeable attorney. Sentient Law is here to assist you.

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Is An ESOP Right For My Company?

by Sentient

Win-win

An Employee Stock Ownership Plan (ESOP), is the most popular form of employee ownership in the U.S. ESOPs helps businesses establish a transition plan by creating a market for their company’s stock. This method of ownership transfer or sale can be a sound strategic move for business owners to ease the burden of retirement and to sell in a way that is advantageous for tax purposes. The benefits of an ESOP are not mutually exclusive, it is also a great way to spread the wealth amongst dedicated employees and promotes an ownership culture within a company, making this a win-win benefit plan. After all, giving employees a sense of ownership can make them feel like an important part of the company, incentivizing them to work harder and fostering loyalty and productivity.

The implementation of an ESOP can be extremely complicated, Matthew Rossetti is an expert in this area of practice and will confidently guide you through the process. Let’s take a deeper look into it to determine if an ESOP is the best option for your company.

ESOP simplified

Stock options give employees the opportunity to own parts of the company they work for. In an employee stock option plan a company sets up a trust and this trust can acquire, hold, and sell the company’s stock. An ESOP (employee stock ownership or employee share ownership) is a kind of employee benefit plan offered by employers. In most cases, ESOPs are a contribution made from the company to the employee, rather than an employee purchase. It is a defined-contribution (employees do not pay income tax on the amount contributed by their employer until they withdraw money from the plan) similar to profit-sharing or a 401(k) employee benefit retirement plan. Company shares are allocated to individual employees’ accounts annually. Upon retirement, disability, termination, or death the employer must buy back the stock at fair market value from the employee unless there is a public market for the shares. 

With an ESOP an owner of a company can sell parts or all of its shares and continue to maintain control of the company and its business operations. It is important to note, while this plan is referred to as employee stock ownership, the employees don’t actually own stock in the company. The ESOP is an organized retirement account, held by a trustee for the benefit of the employee. That person, or trust company, will negotiate a closing deal on behalf of the employees and hold the sold stock in trust. Although employees have an ownership stake in the company, they don’t actually have a right to vote the shares, to elect the board of directors, or any say as to how the company should or will be operated. When the employees retire, then, they reap the rewards and get a payment based on what the shares are worth.

Why is it advantageous to an employer?

Choosing to sell a business to an ESOP requires much consideration for a business owner. While establishing an ESOP has its advantages, an ESOP is not the proper course of action for all corporations, and particular entity formations do not meet the requirements for this type of employee benefit plan. For example, an S corporation and a C Corporation have the ability to establish an ESOP. However, an LLC is not permitted to have an ESOP because it does not have stock, it has memberships or units, therefore it can not offer ESOP stock options. That being said, an LLC that is taxed as an S corporation does qualify for an ESOP. Rather than stock, the unit shares will have the same rights to distribution, dividends, and liquidation proceeds.

For those companies that do qualify and opt for an employee stock option plan, there are substantial tax advantages. Not only is it a tax-exempt trust, transferring to an ESOP allows a business owner to defer or bypass capital gains taxes. Moreover, contributions of stock and cash are tax-deductible, and when an ESOP is used to borrow money both the loan repayments and interest are tax-deductible. The benefits of an ESOP will vary depending on the type of entity a business owner chooses for their company. Many companies choose to convert LLC taxed partnerships into an LLC taxed as a corporation, S corporations into C corporations, and C corporations into S corporations after having more clarity as to the benefits of each. A popular choice of entity selection for businesses aiming to offer an ESOP is choosing an S corporation, due to its significant tax advantages.

If the ESOP holds shares in an S corporation, the earnings from the ESOP shares are not taxable. Furthermore, an S corporation can avoid tax distributions all together and hold on to the cash in the company, for reinvestment into the business, if the ESOP owns 100 percent of the company. This is because S corps don’t pay tax on their profits, their profits and losses are passed through to their shareholders based on the percentage of their ownership. If an ESOP owns the company, there is no federal tax due because the ESOP is in a trust, which is tax exempt, allowing companies to retain more of its earnings. With the increase of cash flow, corporations are able to quickly reduce debt, enhance employee benefits, and have funds for greater capital investments and acquisitions. This is a huge tax advantage for S corporations. Do keep in mind,  Any changes that are to be made to your business entity should be done after consulting a qualified attorney, due to possible adverse consequences. 

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Top 3 Asset Protection Strategies

by Sentient

Startup Asset Protection

Best-laid plan

We all dream of our chance at success. For many American people today, this dream isn’t limited to owning a home, having a couple of vehicles in the garage, mounds of wealth, and raising a big family. Though, success may still include some, if not all of the previously mentioned, owning a business and being your own boss is the new standard for success. There is nothing more thrilling than taking life by the reins and directing it towards one’s own vision. Many hopeful entrepreneurs are jumping right in, taking brave steps, starting their own companies. And while there are no limits to the success that could be achieved, there are also no guarantees either. Most startup businesses fail because their plans never included planning to fail. It is only when we truly take into consideration the possibility that all may not go according to plan, that we can plan accordingly. If you are in the beginning stages of planning your business, this is great news. you can safeguard your company and personal assets from the very start. For those that are already well into the day-to-day grind of running your company, rest assured, It is never too late to take action in protecting your business assets. It is always advisable to consult an attorney before making any major business decisions. Attorney, Matthew Rossetti, is an expert in startup business formation and asset protection. He will assist you in creating the ideal strategy for your organization’s specific needs. Here are three top asset protection strategies to give you a solid start in safeguarding your assets.

1. Just business, nothing personal

Bootstrapping a business is the method many entrepreneurs, with little to no outside resources, take to get their organizations up and running. Understandably so, most of these individuals start operating as a sole proprietorship due to a lack of funds. Regrettably, a sole proprietorship will not protect your assets, leaving you completely vulnerable to creditors and lawsuits. An individual may stand to lose everything, in the blink of an eye. Don’t put your house, car, savings, and other personal assets in jeopardy. It is paramount that you make a clear distinction between your personal and business assets from the very start. Limiting your personal liability is done by simply forming a Corporation, Limited Partnership (LP), or Limited Liability Company (LLC). This may cost a little more upfront but it is affordable and will be money well invested, ensuring the success of your business and peace of mind. A business entity operates as a “person” who engages in business and is put at risk doing business, it can file for bankruptcy if need be, as well as sue or be sued. Don’t let that “person” be you. If the business fails you are able to protect yourself with limited liability or a corporation.

2. Insurance + Insurance

Business insurance is crucial, regardless of the size of your business. Be sure to include it in your startup budget. This will be deductible as a business expense for the year’s taxes. There is a broad range of insurance options to choose from. Due diligence must be used when selecting the correct insurance policy for your particular organization’s needs. In your exploration, you will find options for liability insurance, property insurance, business interruption insurance, third party liability insurance, directors and officers errors, and omissions insurance, and much more. Insurance gives you the ability to take care of incidents that may arise in your business and in its dealings, as well as provide liability coverage in case of a lawsuit. Whichever type of insurance you choose, understand that it must be owned by the entity, not by you, the individual. Never mix the company’s insurance with your personal insurance. For example, the car that you use for work should be insured through the entity, not grouped in with your standard home and car bundle insurance packages. 

Once you have acquired adequate business insurance you will want to include a fail-safe plan, umbrella insurance. This type of insurance functions as an umbrella over any other insurance policies that you may carry. It is meant to provide coverage for everything that your other insurance policies missed.  When your existing policies cannot cover settlements, umbrella insurance can help you avoid wage garnishment and asset seizures. However, do keep in mind, it will not cover any negligent, criminal, or reckless activity. 

3. The backup plan

Having a risky occupation or lifestyle can increase the potential of vulnerable assets. If you have taken all of the above measures and still have some concerns about keeping your personal and business assets protected, we have listed a few alternatives for your consideration:

  • Hold valuable assets in your spouses name

In most states, assets can be shielded from a spouse’s creditors, if they are placed in the name of the other spouse. With this type of asset protection in place, the separate property of a spouse cannot be touched. Please keep in mind, this strategy can backfire when it comes to the division of property during a divorce.

  • Place them in an Asset Protection Trust (APT)

Although extremely complicated, an APT is probably one of the best moves you can make. This exists to specifically hold an individual’s assets with the purpose of shielding them from creditors. Furthermore, lawsuits and judgments will have little to no effect on your assets. There are two types of asset protection trust;

Revocable which comes with many benefits, as it can be changed and altered but this does not offer full protection.

Irrevocable which is the best choice for protecting your asset, however, it can never be changed and you will have little control over the trust assets.

  • Create separate entities to hold your assets

Businesses often hold assets in separate companies. Doing this provides liability protection and tax concessions. The holding company is not responsible for any of the business activities, making the liability of the operation less likely, thereby protecting your assets. Often, the owners of the company holding the assets are not the same as the owners of the operational business. Assets are usually being held by a group of investors or an asset holding company. That being said, you can operate your separate entity in the same way. Putting real estate or other investment assets into a limited partnership (LP), you can essentially protect your assets to the same degree.

 

Attorney, Matthew Rossetti, specializes in start-up businesses and the formation of companies. He is the premier “Slicing Pie” expert in the midwest. Rossetti uses a custom dynamic business formation model to create a perfectly fair equity split, in the early stages of a company. Set up a 30-minute consultation for guidance.

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How to be a Startup CEO

by Sentient

Laying the groundwork for success

A board of directors is tasked with making one of the most paramount decisions for their organization, selecting the chief executive officer (CEO). Although the board of directors is the supreme governing authority of the company, the CEO holds one of the most important roles within an organization. This individual will lead the institution in developing its vision, tone, culture, long-term strategy, and increasing shareholder value. Not to mention, a CEO is generally responsible for routine day-to-day business decisions that can make or break a venture. A successful CEO will need to put their ego on the shelf, roll up their sleeves, and be willing to do whatever needs to be done. As a startup CEO, prepare to be particularly hands-on and heavily involved in the day-to-day functions of the company. It is commonly said that startup CEOs wear all hats. This role will be demanding, responsibilities will be unending, and the struggles will be unexpected. 

Check it out: Learn more about Partnerships!

Understand the Role of a CEO

It is a popular belief that CEOs only deal with high-level corporate strategy and major corporate decision making. While that is often true for larger companies, a startup CEO must have an apt ability for both higher and lower level decision making. He/she will be held accountable for the performance and results of the company and must work to satisfy internal goals, external shareholders, and increasingly the public. This role will encompass making judgments and tough calls along with having a strong connection with the frontline of the business. Choosing the right CEO for a startup has huge benefits for the long-term success of a company. In this ever-changing work environment, the expectations of a CEO have become highly dependent on what is commonly referred to as soft skill: having strong interpersonal skills and a high EQ (emotional quotient) are now additional strengths needed to be a successful CEO. The responsibilities you will take on as a startup CEO will give you all of the tools needed to lead a successful venture while standing shoulder-to-shoulder with your team.

Does your CEO have what it takes?

  • Strong leadership skills
  • Approachable and personable
  • Communication and transparency
  • Invests time into company culture (being active and present)
  • Committed to the company mission
  • Willingness to provide leadership and professional growth opportunities for employees

Startup CEO Responsibilities are Far-reaching

The CEO of an organization is accountable for far more than ensuring substantial profits and making sound investments for the future of the company. They should have a clear perspective across the organization as well as accountability for the consumer. It is important to focus on the satisfaction of all stakeholders in the business, not only the investors and shareholders but employees, customers, suppliers, and most importantly the consumer. A successful CEO will know, it is critical to concentrate attention on both internal and external organizational factors. The ultimate goal is winning over the consumer. After all, what good are products and services that no one wants to use or be affiliated with?

Check it out: Top 5 Online Business Ideas!

Typical CEO Responsibilities

  • Provide inspiring leadership inside and outside of the company
  • Create an environment that promotes great performance and positive morale
  • Decide on a strategic direction for the company 
  • Make high-level decisions about policy and strategy
  • Develop and implement the organization’s operational policies, culture, its overall vision and mission
  • Lead in the development of the company’s short and long-term goals, making sure they are measurable and describable
  • Maintain a clear direction for the company
  • Remain focused on company goals
  • Oversee day-to-day operations
  • Be aware of competitive markets, industry developments, and expansion opportunities 
  • Find acquisition opportunities 
  • Oversee the company’s fiscal activity including budgeting, reporting, and auditing
  • Ensure risks are monitored and minimize
  • Maintain high social responsibility wherever the company does business
  • Act as the spokesperson for the company, be the public face
  • Create a business network
  • Build alliances and partnerships with other organizations
  • Communicate on behalf of the company with the public, shareholders, government entities, etc.
  • Carefully make hiring decisions (try to recruit talent who are smarter than you)
  • Report to the board of directors and keep them informed
  • Evaluate the work of others within the company including leaders, directors, vice president, and president
  • Work with senior stakeholders, chief financial officer, chief information officer, and other executives.
  • Manage your board and listen to them carefully
  • Believe in and trust the expertise of others
  • Ask questions of yourself and others, at all levels
  • Delegate effectively
  • Assure legal and regulatory documents are filed and monitor compliance with the laws and regulations
Style Shifting: The Struggles of a Triumphant CEO

While it is extremely rewarding to watch your company grow and thrive, a startup CEO will face some challenges in the shifting of their style as the business flourishes. In the company’s infancy, responsibilities seem limitless; a startup the CEO must be willing to do anything and everything. When the company evolves into an organizational ecosystem comprised of multiple departments and hundreds of team members, it is impossible to continue to maintain that role. Thus, the CEO must evolve as well. By now this individual has laid a solid foundation for the organization and a direct path for a successful venture. However, the next steps can be some of the most difficult challenges a chief executive officer will face. Stepping back, delegating responsibilities to team members, and letting go of some control can be cause for extreme consternation. Great leaders must learn to zoom out and stop doing everything. It is time to be confident in the painstaking strategizing, planning, and managing that has already been implemented. The best CEOs know or learn that, although they may make most of the final decision, those decisions should be informed by the advice of subject matter experts. Assuming a CEO has the right people in place, when in doubt delegate.

Attorney, Matthew Rossetti, specializes in start-up businesses and the formation of companies. He is the premier “Slicing Pie” expert in the midwest. Rossetti uses a custom dynamic business formation model to create a perfectly fair equity split, in the early stages of a company. Set up a 30-minute consultation for guidance.

Set up an appointment with Matt on Calendly.com

 

Dynamic Equity/entrepreneurship/Slicing Pie/startup/Uncategorized
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Business Partnerships

by Sentient

Partnerships

Partnerships can create an opportunity for your business to grow and thrive. Sentient Law knows that the ins and outs of such a venture can be challenging for many business owners. Attorney, Matthew Rossetti, is the premier “Slicing Pie” expert in the United States; he will ensure that you structure your partnership right from the very beginning. Whether you are building your business from the ground up or looking to add a partner to your existing business, he will guide you through the entire process. Here, we’ve provided some key information to help ease you through the nuances of understanding partnerships. 

Making it legal

A formal, legal agreement between you and your partner(s) will allow you to manage and operate your business as co-owners. You will also share in the profits and liabilities. It is important to be safe, be good, and be prepared. Sentient Law uses a custom dynamic business formation model to create a perfectly fair equity split in the early stages of a company. This makes sure that everyone owns the percentage of the business that they deserve. In other words, you get out what you put in.  This is achieved by calculating the input values of each partner. Monetizing and verifying the value you have brought to the company incentivizes each partner to contribute to the business. Setting up this organic agreement means you’ll never have to concern yourself with wondering how to fairly and proportionally divide your company’s ownership.

There are several types of partnership arrangements

Be sure to explore and choose the most suitable arrangement for your business. The most important types of partnerships to consider are:

  • General Partnerships:  All partners represent the company when dealing with outside parties. Each partner has equal control and the right to participate in decision-making and the management of the business. Furthermore, the risks and returns are distributed equally, unless otherwise stated in your partnership agreement.
  • Limited Partnerships (LP): A limited partner has no authority and will not earn equal returns. Their personal assets are protected by limited liability in legal situations, unlike a general partner. Not to be confused with Limited Liability Partnership (LLP). 
  • Limited Liability Partnerships (LLP): This is a popular business formation because it allows for collaboration without holding all partners responsible for one partner’s mistakes. In this type of structure, some or all of the parties have limited liability, protecting their personal assets if legal issues arise.
  • Joint Liability Partnerships: In a joint liability partnership, all partners are equal. They share in all the responsibilities of the business, including liability for financial and legal issues.
  • Several Liability Partnerships: This is a complex arrangement. The weight of responsibility can shift, depending on the specific duties and responsibilities of each partner. Liability could fall to a partner for lack of due diligence and the legal responsibilities can be divided depending on where the obligation lies. 

Who’s who and what’s what?

Going into a partnership can leave you a bit confused as to what your role is in the company. To clear things up, here are some terms that may help you understand your role and may serve as a guide when seeking out potential partners.

  • Founder: The person or persons that created the company. The owner is not necessarily the founder. Your new partner can be an owner as well, however, if you forged this entity you are the founder.
  • Investor: Any person, company, or entity that invests capital into a business and expects to earn a rate of return. An investor may put money into the business or purchase stocks from other investors. The main objective is to maximize profits and minimize risk. Investors may contribute with labor, provide loans, buy shares, or perhaps even guarantee to pay creditors.
  • Angel Investor: Typically wealthy, these are individuals that provide a startup with seed money or capital for expansion, in exchange for ownership or equity. They are often willing to invest hundreds of thousands of dollars into a business if they believe they will reap the rewards of your success. However, angel investors are not always motivated solely by making a profit. These are often professionals that are well into their careers and are inspired to give something back and driven by doing a good deed for an aspiring entrepreneur. Angel investors are often referred to as informal investors, angel funders, private investors, seed investors, or business angels.
  • Equity Stakeholder: Although stakeholders are commonly thought to be large inventors that can afford to hold a viable stake in a company, there is much more to be considered. In actuality, anyone that invests in a company and whose actions determine the outcome of its business decisions is a stakeholder.  These investors have a long-term interest in the performance of the company. They don’t have to be actual equity holders, they can be shareholders, creditors and debenture holders, employees, customers, suppliers, the government, and more. Simply put, stakeholders rely on the success of a business to keep the supply chain going.

It’s never too late to start using the “Slicing Pie” approach

You may already have an existing partnership agreement. Due to ever-changing life events, your existing agreement may no longer be the right fit for you and your partners. If you have an LLC and it is pre-revenue, amending your agreements is straightforward and simple for Sentient Law. Depending on the circumstances, almost all partnership agreements can be amended with the consent of all parties involved. Matthew Rossetti will work with you to create a perfectly fair and balanced agreement and equity split. Set up a 30-minute consultation today to discuss how he can help you.

Attorney, Matthew Rossetti, specializes in start-up businesses and the formation of companies. He is the premier “Slicing Pie” expert in the midwest. Rossetti uses a custom dynamic business formation model to create a perfectly fair equity split, in the early stages of a company. Set up a 30-minute consultation for guidance.

Set up an appointment with Matt on Calendly.com

 

Dynamic Equity/entrepreneurship/Slicing Pie/startup/Uncategorized
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Top 5 Online Business Ideas – Start-Up Edition

by Sentient

The Time and Money Conundrum

When you have the money you don’t have the time when you have the time you never seem to have the money. So many people, like yourself, have been baffled by this conundrum for so long. You work long, stressful hours to make the type of money that would allow you to grow your family or take those amazing vacations that you’ve been fantasizing about. Now that you’ve stockpiled your earnings and are ready to start planning, you realize that you can’t afford the time because you have sacrificed time for money. On the occasion that you have as much free time as anyone could ever hope for, you find yourself wishing that you had the type of career that could bankroll your wanderlust or support your desire to focus on family. Alas, you come to realize that you have sacrificed money for time. Having to choose between time and money would be a tough pill to swallow if you had to. Contrary to popular belief, you don’t have to.

Buying Time Freedom and Independence

Creating an online business can bring you the type of lifestyle and financial freedom you’ve been longing for! You can become a highly active full-time entrepreneur or keep your workload light by sharing some of the responsibilities with a partner. The greatest thing about having an online business is anyone can do it from almost anywhere. The sky’s the limit.

Business Partner and Being Prepared

Many entrepreneurs enjoy the thrill of being highly active and fully involved in the day-to-day of their business. It can be very rewarding to be the face and voice of your company by handling your own sales and marketing, along with networking and cultivating great relationships with your clients. There is also a sense of security when it comes to being the sole person in charge of accounting and finance. Going it alone has its perks for those that are great at managing their time and understand the skills needed to provide your business with a solid foundation.

For some, handling all aspects of the day-to-day grind can seem overwhelming or in time, become overwhelming as your business starts to take off. A lot of people work better in teams, consider having a business partner to share some of the load. Partnerships provide an opportunity for you to focus on your strengths and to draw from someone else’s expertise, in areas that you are not highly skilled. In many instances, startups are unable to pay people upfront. It will be important to figure out when and how you will do that, once your company starts to see profits. Sentient Law specializes in using a dynamic equity framework to fairly distribute equity to your startup team. This allows partners to calculate the value of their time, making sure everyone is compensated fairly.

Get your wheels turning with these Top 5 Online Business Ideas.

  1. Digital Products or Courses
  2. Virtual Coaching
  3. Dropshipping
  4. Box Subscription Business
  5. E-commerce Retailer

Removing Mental Roadblocks

Even though we are all constantly using online products and services, when it comes to launching a personal online business it can be intimidating. Self-doubt can quickly stifle your enthusiasm and bring creating and planning to an immediate halt. Why not you? You have all of the skills required to create and grow a successful online business. The first thing you must do is open your mind.

While it is true that you should work with what you know, just because you are in finance, does not mean your online business needs to have anything to do with finance. Explore other areas where you are knowledgeable. For example, you may also know what a great shave should consist of. In that case, you could sell amazing razors, and other shave tools and products. Think outside the box.

Another hurdle that people tend to face is the notion that their online business should spark from some sort of deep and meaningful passion. As lovely as that sounds, if you are someone who has had a career for at least five years, you probably already know, deep and meaningful careers can become just as daunting and monotonous, as with any other. Focus more on what will bring you the type of income that would allow a deep and meaningful life. Remember, money is a tool to buy time, freedom, and independence.

What’s the Right Business for Me?

Ask Yourself These Questions:

  • What am I good at?
  • What do I know?
  • What type of lifestyle do I want to lead?
  • What do I want my day to day to look like?
  • How much am I willing to invest in my business (multiply by 3)?
  • What do I know about this product or service?
  • Do I want to do this on my own?
  • Do I want or need a partner(s)?
  • Will I have employees?

What Are You Waiting For?

There couldn’t be a better time than right now, to start your online business. You have already proven to yourself that you are ready to take the first steps in owning your own business by visiting our website and reading this blog. By now, you understand that it is possible to have freedom and independence when it comes to both your money and your time. After clearing some common mental roadblocks, your mind is open to opportunities you’ve never thought of before. You are armed with 5 fantastic online business ideas and hopefully, you have come up with a few of your own. Questions have been asked and answered as to some of the specifics about your new business and you are ready to take the next steps. Now it’s time for you to make it official and choose the best business formation for your new company. Sentient Law is here to walk you through the process and answer any questions that you may have.

Attorney, Matthew Rossetti, specializes in start-up businesses and the formation of companies. He is the premier “Slicing Pie” expert in the midwest. Rossetti uses a custom dynamic business formation model to create a perfectly fair equity split, in the early stages of a company. Set up a 30-minute consultation for guidance.

Set up an appointment with Matt on Calendly.com

 

Dynamic Equity/entrepreneurship/Slicing Pie/startup
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The Truth about Slicing Pie

by Sentient

Originally Published on Forbes.com here.

Overcoming The Misconceptions Of Dynamic Equity

By Matt Rossetti

These days, most startup attorneys I meet have at least heard of the slicing pie model for equity distribution, but many have yet to use it. There are a few common misconceptions that cause them to steer clients away from slicing pie toward more conventional equity split models. In this article, I will address a few of the common concerns and hopefully dispel them as myths.

Dynamic equity is not Impossible

When I first learned about slicing pie I was, like many of my peers, skeptical of its promise to not only deliver a fair equity split but to also provide a framework for avoiding common equity disputes. I was fortunate to meet the model’s inventor, Mike Moyer, who referred a few clients and encouraged me to develop a legal solution. Since then I’ve done over 1,000 consultations on the model and it has become my default recommendation for equity distribution in bootstrapped startups.

Before trying the model, I found that no matter how carefully founders planned, at least 50% of them had a dispute over their equity split that required legal intervention within the first year or so of formation. Many of my colleagues who serve early-stage companies are all too familiar with this exceedingly common problem. In my experience, the slicing pie model has virtually eliminated equity disputes among founders and problems that do arise can usually be addressed within the framework.

There are three basic areas of concern that prevent attorneys and founders from applying the model: concerns about future issues, concerns about implementation and concerns about non-compliance with the model.

1. Concerns About Future Issues

Teams often express concerns about future issues that may arise, especially when it comes to how the model is perceived by third parties such as investors and taxing authorities. The fear is that future investors will view the model as too ambiguous or complex and that it might trigger undesirable tax events.

Having seen companies using the model grow and move through multiple funding rounds, I have yet to encounter an investor who takes issue with the model or cites it as a reason to pass on an opportunity. On the contrary, the idea that each founder is entitled to equity in proportion to their contribution is usually viewed in a positive light by investors, especially when they explore the underlying logic and cut through the perceived complexity.

A key point to consider is that not all resource consumption garners a higher valuation. For example, a company that hires a janitor to take out the trash for $20 an hour and 10 hours per week did not just become $4,400 more valuable. Similarly, since the model terminates before any major financial transactions that require a valuation, tax consequences are about the same as any other model.

2. Concerns About Implementation

The slicing pie model requires a tabulation of the fair market value of the contributions from each participant. The prospect of tracking these inputs is often distasteful for founders who relish freedom from the structure of corporate life. In practice, the model simply accounts for transactions that most companies track as a matter of course. For instance, most successful companies track payroll, expenses, sales, investments and other financial activities. A key difference, however, is that most monitoring systems are based on financial transactions and most founders do not feel the need to track non-financial events such as not getting paid or not getting reimbursed for expenses. Unfortunately, the absence of this discipline can skew the teams understanding of their own business model. Once teams understand how important this activity is, this concern is no longer a hurdle to implementation, especially given the availability of tools to manage slicing pie record keeping.

Other implementation concerns focus on the conversion of the slicing pie hypothetical split into actual ownership of shares or membership interests in the company. This process, from a legal standpoint, is quite simple and often occurs in the context of a structural change in the organization as it matures or takes on professional VC funding. Once the shares or membership interests are formally issued, they are subject to more conventional terms set by management or the angel or Series-A investor.

3. Concerns About Non-Compliance

The last major area of concern deals with a series of what-if scenarios. For example, what if a participant reports more time than they actually spend. Or what if someone demands a set percentage of shares. Most of these fall into the category of management issues, rather than an issue with slicing pie. For instance, a person who is unproductive or dishonest will eventually be terminated for good reason and the model will impose logical consequences. The slicing pie model allows managers to make rational business decisions and provides protection for all participants.

The other form of non-compliance, which is more difficult to manage, occurs when a participant attempts to renegotiate the terms of the deal in their favor, usually by holding the company hostage. A recent example from my own practice was a CTO who shut down the company’s software product and email system unless he was granted a fixed equity stake in the business. Sadly, this scenario is not completely uncommon under any framework and usually represents a situation in which one person overvalues their own contribution while undervaluing the contributions of others. Slicing pie’s alignment with fair market values most certainly mitigates this risk, yet some egos don’t respond well to logic. In my experience, a frank, lawyer-to-lawyer discussion can disarm what could otherwise be an explosive situation.

In spite of what you may or may not have heard about the slicing pie model, the most common misconceptions can be easily addressed with a concerned client. The benefits of implementing the model far outweigh any perceived problems and going with conventional methods carries far too much risk. I highly encourage anyone who counsels early-stage companies to familiarize themselves with the benefits and help clients to implement so that they can avoid the common pitfalls of unfair equity splits and the infamous founder’s dilemma.

If you are interested in using a dynamic equity framework to fairly distribute equity to your startup team, please contact us today via email to contact@sentientlaw.com or by phone at (312) 650-9087.