When is it wise to gift shares to an individual helping you to get your business started?
A web user asks, I am 100% owner of a C-corporation, which is five years old. We have started a new business (5 months), however, we have not begun making any money yet. The individual working with me to get the business up and running is asking to become a 50% owner through gifting these shares now.
Can you help them out? Post your advice!
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If I were you I would set up a new corporation for the new venture and then, assuming the 50% share is acceptable to you, just give the individual the stock when the new corporation is formed.
However, I wouldn’t recommend that you split the stock 50/50 since that can lead to business crippling deadlocks if the two of you disagree. Two alternatives you should consider; first, only give up 49% so that you are the final arbiter. Second, find a third party you both trust and give that person 2%.
Now, as far as business organization goes. I suggest that you incorporate the new venture as a C-Corporation and pay out profits in the form of salaries and bonuses rather than salaries and dividends. That way, in the event your helpful individual stops being helpful you can dump him/her and won’t be saddled with splitting the profits with a non-contributor.
Hope this helps
Jerry-the-bookkeeper