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Profit sharing, company valuation and investors

Asked by: raj  — 8 November, 2011

Respected sir,
I have a question regarding partnership and equity for online company. Actually, i want to open a company with total 7 people. I decided to offer 5% equity or profit to five employee and 50% to investor and remaining mine. But, what i wanted to know is when someone invest in our company how much shares or equity will they get? Like, our company grows , and investor invested 1 million…so, how much will they get? How to calculate sharing?
For example, first year turn over is $1,000,000. so 5% is $50,000. That is taken by all 5 employee and 50% is $500000 and 25% is $250000. So, what I want to ask is if someone invested more capital in our business, how to calculate profit sharing in terms of company valuation?
Thank you

Answered by: admin  — 8 November, 2011


Valuations are tricky and complicated and depend on many variables some of which are not yet known (for example how much would the investor be willing to invest? What are the terms of the investment? How successful will the company be?)

I recommend that you retain an attorney who will help you structure the company/partnership and will also assist you with your dealings with the investor.

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