Understanding Contract Terms (post 1): Goodwill

In a new series on the iVLG blog, we’ll take common terms you see in various contracts and break them down so you can understand what exactly the term means, and its role in your contract. In today’s post, we’ll look into the definition of goodwill.

Webster’s Dictionary defines goodwill (in terms of business) as:

(1) the favor or advantage that a business has acquired especially through its brands and its good reputation (2) : the value of projected earnings increases of a business especially as part of its purchase price (3) : the excess of the purchase price of a company over its book value which represents the value of goodwill as an intangible asset for accounting purposes

Successful businesses build a strong brand name, good...

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Business Startup

Dividing the Equity of a Startup

The Two Basic Approaches

There are many ways to divide the equity of a startup, but broadly speaking there are two approaches: (1) go with what’s “fair”; or (2) try to ascertain the market value of the founders’ present and future conduct.

The “Fair” Approach The basic premise of this approach is that founders putting in equal time should have equal ownership interests. The main benefit is to the relationship between the founders. When they are equal owners, they need to act with greater consensus. When one founder doesn’t get his or her way, they don’t feel like they were cheated by the company structure: there’s at least a fairness of process. In contrast, a minority founder may feel hopelessly at odds with...

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