

Ask HN: CTO position identified as contractor? - frwall

Joining a new(ish) startup with stake in the company and title of CTO.  Documents I received from their lawyer though, identify me as a consultant, paid in stock?  Is this normal?  Seems to be in conflict with the CTO role, as the "consultant" agreement says I am not a representative of the company.
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pg
That is a bad sign.

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frwall
to clarify, I get a percentage of the company via stock, to be vested over a
12 month period.

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pg
It's still a bad sign. A CTO should be an employee.

Also, 4 years is the standard for vesting, not 12 months.

It sounds like these guys may have bad lawyers.

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frwall
they wanted 4 years. But being as I'm not drawing a salary, I refused it and
it was changed to 12 months.

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kls
Good call, for an equity only position it is a huge upfront risk, and 4 years
to vest is a long time for that risk to mature. If it where me, I would not
take a pure equity stake without some ownership after a 30 day trial window.
Maybe not the whole thing, but I would certainly want ownership of my entire
stake within a 12 month window. The thing to remember in a pure equity
arrangement is that you should be treated equally to the other founders after
consideration has been made for the efforts put in up until you enter the
company. If it is ground floor and no work has been done your equity and
vesting should look like their equity and vesting, if it does not then you
should consider that a red flag.

As for the consultant title, I don't think it is a big deal until salary is
involved, they are probably not wanting to carry employees on the books as
their are all kinds of legal situations that arise from doing so, standard (I
am not a lawyer disclaimer applies). For example if you are not drawing a
salary then how do you comply with minimum wage for a w2 position, that is
just one of many, it can be done but it takes effort to dot all the i's, there
is a lot less to deal with if everyone is a consultant, and responsible for
themselves legally. I have been part of several efforts where we where all
S-Corps and had a blanket LLC that each S-Corp or consultant held ownership
in, while it is not totally the norm, it is not unheard of. What does the
other founders structure look like? Are they employees or are they consultants
as well?

The bigger question is does your equity place you on the board of directors
for the company? If it does not then you may want to consider carefully your
position in the direction of the company and you ability to direct that
direction.

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doctorwho
Are they remitting tax to the IRS for you? Are you liable for taxes they don't
withhold? Ask if they mind you clarifying with the IRS before you accept the
job to be sure. You do not want to get stuck with a massive tax bill. It
smells like they are trying to avoid paying salary tax. Not an encouraging
sign IMHO.

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frwall
I'm not drawing a salary. When we're profitable we'll either set up salaries
or start drawing splits.

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jfarmer
Don't do it. This is highly unorthodox. Even if you can negotiate your way to
a better situation, the fact that this is their opening offering says to me
they either don't know what they're doing or are trying to take advantage of
you in some way.

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frwall
thanks for all the feedback. I think I've got it worked out (ish).

