Movie Case Study
The scene shows a conversation between Mrs. Khanna and Aditya Kashyap (played by Shahid Kapoor). Mrs. Khanna & Mr. Kashyap were the co-founders of Kashyap Industries while Aditya, their son is the current owner of the company. Although the family is broken, he reinstates his mother, Mrs. Kashyap, in the business with her original share & position in the business recognizing her hard work.
In this blog, Learning Perspectives will explore the meaning of founders’ ownership in the business.
What is Founders’ Ownership?
Founders’ ownership is the percentage share that is owned by them in the company. A founder is a person who starts a company from scratch. If this is a single person, then he/she owns the entire 100% of the company. Along the journey, when new investors come into the business, ownership of the founder lessens or dilutes.
If there are two people as founders, similar to the scene, then they would have an equal stake in the business i.e. 50% each. Founders generally have a higher stake in the business as they were the ones who took the most risk and worked without money initially to sustain the company.
Factors when deciding ownership
Over time as the company grows, many new investors join the company. One needs to consider various factors before deciding on the ownership of the new investor.
Dilution occurs when the shareholder loses a percentage stake in the company when new shares are issued. This might be a difficult topic but should be addressed before a new investor walks into the company, how much is each founder willing to let go before the decision is made? The most famous case of dilution was seen in Facebook when the co-founder’s (Eduardo Saverin) stake was completely diluted while Mark Zuckerberg remained intact.
A general rule is the capital contribution to the business i.e. a greater amount of initial start-up capital ensures a higher percentage stake in the company. Founders who invest a greater amount in the business should have an even higher percentage as they are the ones who took the most risk to start the business.
Intellectual Property Right
This is the founder who invented the idea and on whose name the patent exists. This founder needs to have a higher percentage stake in the business.
Generally, the lead innovator has the highest percentage stake in the business. Members who look after the finances have a lower percentage stake compared to the ones who have been the marketing in charge as they drive revenue for the company.