Ask HN: CTO position identified as contractor? | Hacker News Reader

Ask HN: CTO position identified as contractor?

1 pointfrwall9 comments

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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That is a bad sign.

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

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.

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

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.

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.

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

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.

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

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