How to trade equity for skills?

[willhunting]

We have just been made an offer of bringing board-level operational/management skills into our company from three individuals for an exchange of 25% of the business. If things don't work out, they have offered to tear up the shares. What should I be aware of before accepting this offer and how do I go about ensuring that their shares are voided at the agreed time?

 

[ethical PR]

.- If you feel the skills they bring would be worth 25% of your business you need a shareholders agreement which clearly outlines what they will be offering the business, outputs, whether working full, part time, xx hours per month etc

Speak to your accountant and get a commercial solicitor to work with you.

If they are being employed you also need an employment contract.

 

[moduslegal]

I like ethical PR's answer. I would go a bit further and say that you need to set measurable goals for them to achieve, with failure to achieve those goals triggering the return of the shares.
You need to be asking the question of where these new shares are going to come from ie from the company itself or from existing shareholders. There will be consequences either way.
You cannot just 'void' shares. Once they are created they will continue in existence until you cancel them in accordance with the relevant company law procedure. You are going to need contracts with provisions for either returning the shares to other shareholders or being repurchased by the company, hence the need for measurable trigger provisions.
Something it is always worth doing is having stock transfer forms already filled out and signed by them (but not dated) transferring the shares back. This isn't a magic bullet but it can't hurt.