FORTUNE Small Business:

Should I give my business partner equity?

The owner of a social-networking Web site in India hires a COO, and wonders how much equity he should offer.

By Anne Fisher, FSB Magazine

(FSB Magazine) -- Dear FSB: My Web company, Careeb (, offers social-networking and online-classifieds services, similar to Craigslist but for the Indian market. I asked a friend to be COO and handle the technical side of the business. How much equity in the company should I give him?--Naveed Ahmed, Founder and CEO, Careeb Hyderabad, India

Dear Naveed: It's generous of you to want to cut your friend in on the equity - maybe too generous. I asked several experts about it, and the consensus is that friendship doesn't necessarily mix well with business.

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"I recommend you keep 100 percent of the equity," says Douglas Cumming, who teaches entrepreneurial finance in the MBA program at Rensselaer Polytechnic Institute in Troy, N.Y. ( "If your company is like Craigslist, the technical side is not very difficult," so that you could easily hire someone to do it for a straight salary and benefits.

Rather than handing your pal a chunk of the company right now, Jordan Klear, a managing director at Denver-based private-equity firm Tivis Ventures (, suggests doling out shares over the next several years based on his performance.

"Set aside a portion of your initial capitalization so that you can offer shares or options later to people who will be relatively hard to get, like a top-notch chief financial officer." (I'm bracing for a flood of mail on the pros and cons of turning friends into business partners. Bring it on!) Top of page

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