You say % and I say #...
Every time I hear a founder or entrepreneur say they want to give X percent of their company to this team member or that investor - I cringe a little. Why?
Percentages are fixed, however #'s are always changing. When a founder is promising a consultant, advisor, team member, investor (or whomever) a percentage of the company he/she is no doubt promising them a percent of the company at that point in time (so if there are 1,000 outstanding and issued shares, 20% would be 200 shares). However, the pie is always growing so that 1,000 shares today might be a 1,000,000 shares in the future and that 20% is all of a sudden 200,000 shares.
Now you're probably wondering, PT are you seriously saying that someone could have a credible argument that the 20% of 1,000 shares could be extrapolated to mean 20% of 1,000,000 shares?!! Get real.
I'm not saying it does, but depending on the facts and the circumstances, someone could very possibly make an argument that it might. Also, if it does or does not is besides the point. Take this in the perspective of an exit or a large round of VC financing. You really want this joker showing up a week before you close the deal with a document or a written agreement stating that you promised him/her X% of your company? Granted, it might not be a very credible argument, but it's going to take either time or money (or most likely a lot of both) to make this go away and even worse it will create doubt in the mind of the investor/buyer, at the very worst could crater the deal.
Promising someone X% of your company? Don't do it - you'll sleep easier and so will your lawyer.