When a company is sold— do royalty holders get anything? [closed]
I am one of 3 founders of a very small startup company. We want to make rule that says, even if a founding partner leaves, they can still receive a 3% royalty from the company in perpetuity.
Here's my question: If Partner A leaves, gets that 3% royalty-- but then the company is sold for 100 million dollars. Do they get to collect 3 million (3%)? Or would that only be the case if they owned equity instead?
Caveat: we're all very new to this. Most of my knowledge comes from watching Shark Tank ;)
startup equity
closed as off-topic by mxyzplk, The Wandering Dev Manager, Sascha, gnat, gazzz0x2z Dec 3 at 9:04
This question appears to be off-topic. The users who voted to close gave this specific reason:
- "Questions seeking advice on company-specific regulations, agreements, or policies should be directed to your manager or HR department. Questions that address only a specific company or position are of limited use to future visitors. Questions seeking legal advice should be directed to legal professionals. For more information, click here." – mxyzplk, The Wandering Dev Manager, Sascha, gazzz0x2z
If this question can be reworded to fit the rules in the help center, please edit the question.
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I am one of 3 founders of a very small startup company. We want to make rule that says, even if a founding partner leaves, they can still receive a 3% royalty from the company in perpetuity.
Here's my question: If Partner A leaves, gets that 3% royalty-- but then the company is sold for 100 million dollars. Do they get to collect 3 million (3%)? Or would that only be the case if they owned equity instead?
Caveat: we're all very new to this. Most of my knowledge comes from watching Shark Tank ;)
startup equity
closed as off-topic by mxyzplk, The Wandering Dev Manager, Sascha, gnat, gazzz0x2z Dec 3 at 9:04
This question appears to be off-topic. The users who voted to close gave this specific reason:
- "Questions seeking advice on company-specific regulations, agreements, or policies should be directed to your manager or HR department. Questions that address only a specific company or position are of limited use to future visitors. Questions seeking legal advice should be directed to legal professionals. For more information, click here." – mxyzplk, The Wandering Dev Manager, Sascha, gazzz0x2z
If this question can be reworded to fit the rules in the help center, please edit the question.
I appreciate the tips-- and from the other answers. We are indeed hiring a lawyer, not going solely off TV ;). Thanks for the clarification.
– Richard
Dec 2 at 15:27
add a comment |
I am one of 3 founders of a very small startup company. We want to make rule that says, even if a founding partner leaves, they can still receive a 3% royalty from the company in perpetuity.
Here's my question: If Partner A leaves, gets that 3% royalty-- but then the company is sold for 100 million dollars. Do they get to collect 3 million (3%)? Or would that only be the case if they owned equity instead?
Caveat: we're all very new to this. Most of my knowledge comes from watching Shark Tank ;)
startup equity
I am one of 3 founders of a very small startup company. We want to make rule that says, even if a founding partner leaves, they can still receive a 3% royalty from the company in perpetuity.
Here's my question: If Partner A leaves, gets that 3% royalty-- but then the company is sold for 100 million dollars. Do they get to collect 3 million (3%)? Or would that only be the case if they owned equity instead?
Caveat: we're all very new to this. Most of my knowledge comes from watching Shark Tank ;)
startup equity
startup equity
asked Dec 1 at 19:34
Richard
2374
2374
closed as off-topic by mxyzplk, The Wandering Dev Manager, Sascha, gnat, gazzz0x2z Dec 3 at 9:04
This question appears to be off-topic. The users who voted to close gave this specific reason:
- "Questions seeking advice on company-specific regulations, agreements, or policies should be directed to your manager or HR department. Questions that address only a specific company or position are of limited use to future visitors. Questions seeking legal advice should be directed to legal professionals. For more information, click here." – mxyzplk, The Wandering Dev Manager, Sascha, gazzz0x2z
If this question can be reworded to fit the rules in the help center, please edit the question.
closed as off-topic by mxyzplk, The Wandering Dev Manager, Sascha, gnat, gazzz0x2z Dec 3 at 9:04
This question appears to be off-topic. The users who voted to close gave this specific reason:
- "Questions seeking advice on company-specific regulations, agreements, or policies should be directed to your manager or HR department. Questions that address only a specific company or position are of limited use to future visitors. Questions seeking legal advice should be directed to legal professionals. For more information, click here." – mxyzplk, The Wandering Dev Manager, Sascha, gazzz0x2z
If this question can be reworded to fit the rules in the help center, please edit the question.
I appreciate the tips-- and from the other answers. We are indeed hiring a lawyer, not going solely off TV ;). Thanks for the clarification.
– Richard
Dec 2 at 15:27
add a comment |
I appreciate the tips-- and from the other answers. We are indeed hiring a lawyer, not going solely off TV ;). Thanks for the clarification.
– Richard
Dec 2 at 15:27
I appreciate the tips-- and from the other answers. We are indeed hiring a lawyer, not going solely off TV ;). Thanks for the clarification.
– Richard
Dec 2 at 15:27
I appreciate the tips-- and from the other answers. We are indeed hiring a lawyer, not going solely off TV ;). Thanks for the clarification.
– Richard
Dec 2 at 15:27
add a comment |
3 Answers
3
active
oldest
votes
It would depend on the contract, but it's unlikely to be 3% of any income the company gets for any reason (eg interest on investments) and even less likely to be 3% of any money that shareholder get in exchange for their shares.
In most cases the company makes widget or product X, and the royalty is 3% of money for selling instances or copies or whatever of that X. It may even specifically exclude some such revenue: for example my book royalty contracts allowed me to get half the normal royalty, or even nothing at all, on certain high-volume, deep-discount sales (eg to Walmart). (This sort of thing is easily gamed if the remaining founders decide not to sell A any more, or to make A free and sell B instead. Royalty contracts need to be very carefully written.)
The way to compensate founders even after they leave is to give them shares. When the company is acquired, what is actually bought and sold is the shares. If you had been given 10% of the company, when it sold for 100 million, your shares would sell for 10 of that 100 million.
A contract like this is not something you should make up based on what you've seen on TV. A good lawyer at a time like this will earn their fee many times over.
Thank you for your insight! We are indeed hiring a lawyer to review our partnership agreement-- this kind of information makes the task less stressful, if I can go in understanding this bit from the start.
– Richard
Dec 2 at 15:26
add a comment |
Normally when startups get creative over things like this instead of just doing this the tried and tested way...... everyone ends up broke blaming each other, at best someone got even more creative and is in the Bahamas under a new name enjoying themselves.
Royalties are a percentage of sales revenue, in no way related to company ownership or even profits usually. So no lump sum like you think. Also, it's extremely unlikely that anyone would buy a company where they would have to turn over 9% of the sales revenue in perpetuity to the previous owners.
add a comment |
No, he does not. He has a contract with the company for 3% royalty (however this is calculated). The sale of the company does not create a new legal entity. He still has a contract with the company. The sales price is not royalty, it is not company revenue etc.
add a comment |
3 Answers
3
active
oldest
votes
3 Answers
3
active
oldest
votes
active
oldest
votes
active
oldest
votes
It would depend on the contract, but it's unlikely to be 3% of any income the company gets for any reason (eg interest on investments) and even less likely to be 3% of any money that shareholder get in exchange for their shares.
In most cases the company makes widget or product X, and the royalty is 3% of money for selling instances or copies or whatever of that X. It may even specifically exclude some such revenue: for example my book royalty contracts allowed me to get half the normal royalty, or even nothing at all, on certain high-volume, deep-discount sales (eg to Walmart). (This sort of thing is easily gamed if the remaining founders decide not to sell A any more, or to make A free and sell B instead. Royalty contracts need to be very carefully written.)
The way to compensate founders even after they leave is to give them shares. When the company is acquired, what is actually bought and sold is the shares. If you had been given 10% of the company, when it sold for 100 million, your shares would sell for 10 of that 100 million.
A contract like this is not something you should make up based on what you've seen on TV. A good lawyer at a time like this will earn their fee many times over.
Thank you for your insight! We are indeed hiring a lawyer to review our partnership agreement-- this kind of information makes the task less stressful, if I can go in understanding this bit from the start.
– Richard
Dec 2 at 15:26
add a comment |
It would depend on the contract, but it's unlikely to be 3% of any income the company gets for any reason (eg interest on investments) and even less likely to be 3% of any money that shareholder get in exchange for their shares.
In most cases the company makes widget or product X, and the royalty is 3% of money for selling instances or copies or whatever of that X. It may even specifically exclude some such revenue: for example my book royalty contracts allowed me to get half the normal royalty, or even nothing at all, on certain high-volume, deep-discount sales (eg to Walmart). (This sort of thing is easily gamed if the remaining founders decide not to sell A any more, or to make A free and sell B instead. Royalty contracts need to be very carefully written.)
The way to compensate founders even after they leave is to give them shares. When the company is acquired, what is actually bought and sold is the shares. If you had been given 10% of the company, when it sold for 100 million, your shares would sell for 10 of that 100 million.
A contract like this is not something you should make up based on what you've seen on TV. A good lawyer at a time like this will earn their fee many times over.
Thank you for your insight! We are indeed hiring a lawyer to review our partnership agreement-- this kind of information makes the task less stressful, if I can go in understanding this bit from the start.
– Richard
Dec 2 at 15:26
add a comment |
It would depend on the contract, but it's unlikely to be 3% of any income the company gets for any reason (eg interest on investments) and even less likely to be 3% of any money that shareholder get in exchange for their shares.
In most cases the company makes widget or product X, and the royalty is 3% of money for selling instances or copies or whatever of that X. It may even specifically exclude some such revenue: for example my book royalty contracts allowed me to get half the normal royalty, or even nothing at all, on certain high-volume, deep-discount sales (eg to Walmart). (This sort of thing is easily gamed if the remaining founders decide not to sell A any more, or to make A free and sell B instead. Royalty contracts need to be very carefully written.)
The way to compensate founders even after they leave is to give them shares. When the company is acquired, what is actually bought and sold is the shares. If you had been given 10% of the company, when it sold for 100 million, your shares would sell for 10 of that 100 million.
A contract like this is not something you should make up based on what you've seen on TV. A good lawyer at a time like this will earn their fee many times over.
It would depend on the contract, but it's unlikely to be 3% of any income the company gets for any reason (eg interest on investments) and even less likely to be 3% of any money that shareholder get in exchange for their shares.
In most cases the company makes widget or product X, and the royalty is 3% of money for selling instances or copies or whatever of that X. It may even specifically exclude some such revenue: for example my book royalty contracts allowed me to get half the normal royalty, or even nothing at all, on certain high-volume, deep-discount sales (eg to Walmart). (This sort of thing is easily gamed if the remaining founders decide not to sell A any more, or to make A free and sell B instead. Royalty contracts need to be very carefully written.)
The way to compensate founders even after they leave is to give them shares. When the company is acquired, what is actually bought and sold is the shares. If you had been given 10% of the company, when it sold for 100 million, your shares would sell for 10 of that 100 million.
A contract like this is not something you should make up based on what you've seen on TV. A good lawyer at a time like this will earn their fee many times over.
answered Dec 1 at 19:52
Kate Gregory
108k42236339
108k42236339
Thank you for your insight! We are indeed hiring a lawyer to review our partnership agreement-- this kind of information makes the task less stressful, if I can go in understanding this bit from the start.
– Richard
Dec 2 at 15:26
add a comment |
Thank you for your insight! We are indeed hiring a lawyer to review our partnership agreement-- this kind of information makes the task less stressful, if I can go in understanding this bit from the start.
– Richard
Dec 2 at 15:26
Thank you for your insight! We are indeed hiring a lawyer to review our partnership agreement-- this kind of information makes the task less stressful, if I can go in understanding this bit from the start.
– Richard
Dec 2 at 15:26
Thank you for your insight! We are indeed hiring a lawyer to review our partnership agreement-- this kind of information makes the task less stressful, if I can go in understanding this bit from the start.
– Richard
Dec 2 at 15:26
add a comment |
Normally when startups get creative over things like this instead of just doing this the tried and tested way...... everyone ends up broke blaming each other, at best someone got even more creative and is in the Bahamas under a new name enjoying themselves.
Royalties are a percentage of sales revenue, in no way related to company ownership or even profits usually. So no lump sum like you think. Also, it's extremely unlikely that anyone would buy a company where they would have to turn over 9% of the sales revenue in perpetuity to the previous owners.
add a comment |
Normally when startups get creative over things like this instead of just doing this the tried and tested way...... everyone ends up broke blaming each other, at best someone got even more creative and is in the Bahamas under a new name enjoying themselves.
Royalties are a percentage of sales revenue, in no way related to company ownership or even profits usually. So no lump sum like you think. Also, it's extremely unlikely that anyone would buy a company where they would have to turn over 9% of the sales revenue in perpetuity to the previous owners.
add a comment |
Normally when startups get creative over things like this instead of just doing this the tried and tested way...... everyone ends up broke blaming each other, at best someone got even more creative and is in the Bahamas under a new name enjoying themselves.
Royalties are a percentage of sales revenue, in no way related to company ownership or even profits usually. So no lump sum like you think. Also, it's extremely unlikely that anyone would buy a company where they would have to turn over 9% of the sales revenue in perpetuity to the previous owners.
Normally when startups get creative over things like this instead of just doing this the tried and tested way...... everyone ends up broke blaming each other, at best someone got even more creative and is in the Bahamas under a new name enjoying themselves.
Royalties are a percentage of sales revenue, in no way related to company ownership or even profits usually. So no lump sum like you think. Also, it's extremely unlikely that anyone would buy a company where they would have to turn over 9% of the sales revenue in perpetuity to the previous owners.
answered Dec 2 at 1:03
Kilisi
112k61248433
112k61248433
add a comment |
add a comment |
No, he does not. He has a contract with the company for 3% royalty (however this is calculated). The sale of the company does not create a new legal entity. He still has a contract with the company. The sales price is not royalty, it is not company revenue etc.
add a comment |
No, he does not. He has a contract with the company for 3% royalty (however this is calculated). The sale of the company does not create a new legal entity. He still has a contract with the company. The sales price is not royalty, it is not company revenue etc.
add a comment |
No, he does not. He has a contract with the company for 3% royalty (however this is calculated). The sale of the company does not create a new legal entity. He still has a contract with the company. The sales price is not royalty, it is not company revenue etc.
No, he does not. He has a contract with the company for 3% royalty (however this is calculated). The sale of the company does not create a new legal entity. He still has a contract with the company. The sales price is not royalty, it is not company revenue etc.
answered Dec 2 at 15:29
TomTom
3,8792816
3,8792816
add a comment |
add a comment |
I appreciate the tips-- and from the other answers. We are indeed hiring a lawyer, not going solely off TV ;). Thanks for the clarification.
– Richard
Dec 2 at 15:27