Asked in Business Formation for New York

Q: Does sweat equity count when there is a call to capital?

I am a co-founder in a company with 5 other partners. We all put in capital based on our % ownership. I also got 5% sweat equity for free, because I'll be working in the business. We now have a capital call to raise funds. They are factoring in my 5% equity (on top of by 10% ownership which I paid into). Is that correct? Should my contribution be based on 10% or 15% ownership? Thanks!

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1 Lawyer Answer
Michael David Siegel
Michael David Siegel
  • New York, NY
  • Licensed in New York

A: It depends on the formation documents. If this is an LLC it is the operating agreement. If a corporation it is the shareholders agreement.

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