regarding above case, what will be the most suitable profit percentages? Investors invest 5M at the beginning and we 4 do not invest money. Investors do not do anything and we run the whole company. Our product selling price is like 1500 USD.
Setting up a business with investors and deciding how to share profits can be a complex process, but I can provide some general guidelines to help you think through this.
1. **Business Structure**: First, decide on the legal structure of your business (like a corporation, partnership, etc.), as this will impact how you can distribute profits and manage the company.
2. **Investment for Equity**: Typically, investors provide capital in exchange for equity (ownership) in the company. The amount of equity they receive is often proportional to their investment compared to the total value of the company. If the two investors are putting in 5M LKR, you need to agree on what percentage of the company this investment represents.
3. **Valuation of Non-Monetary Contributions**: As founders, you and your friends are contributing skills, time, and potentially other resources. You need to determine the value of these contributions. This can be challenging but is essential for determining how much equity each founder holds.
4. **Vesting Schedule**: It's common for founders' equity to be subject to a vesting schedule. This means you earn your equity over time, which encourages founders to stay committed to the company.
5. **Profit Sharing vs. Equity**: Profit sharing and equity distribution are related but different. Equity represents ownership and typically entitles the holder to a share of the profits. However, the company might reinvest profits instead of distributing them, especially in the early stages. Ensure there's a clear agreement on when and how profits will be distributed.
6. **Roles and Salaries**: Since you'll be working in the company, you should also consider if and how you'll be compensated with salaries in addition to equity.
7. **Investor Rights**: Investors often have specific rights, like voting rights or the right to approve certain decisions. These should be outlined in any investment agreements.
8. **Legal Agreements**: Have clear legal agreements drawn up by a lawyer. This includes investment agreements, founder agreements, and any other necessary contracts.
9. **Future Investment Rounds**: Consider how future investments will dilute the equity of current shareholders, including yourselves and the initial investors.
10. **Exit Strategy**: Think about the long-term plan for the company. Are you aiming to sell it, go public, or something else? This will influence how you structure things now.
11. **Tax Implications**: Be aware of the tax implications in your country and the country where the company will be established. This affects how you structure the company and profit distribution.
12. **Local Laws and Regulations**: Ensure you understand and comply with all local laws and regulations in the country where you're setting up the company.
It's highly recommended to consult with a business advisor or attorney who can provide specific guidance based on your situation and the laws of the countries involved. Remember, every business is unique, and what works for one may not work for another.
GPT4
