Just do yourself a favour and pay them cash.
No decent developer is going to work purely for a small equity share (10% is low enough, but 2%?). When the company starts out it is worth exactly zero dollars. Let’s say you bring a decent developer in and he works on the project for a year at no salary, that means that you are essentially valuing the company at $600,000 at the end of year 1 (assuming a first world developer who would have earned $60k a year). Factor in risk and the such and the company would really have to be worth over a million dollars to make it worth his while.
No matter how you structure things there are ways around it.
One option would be that my employee would get 10% of the company right off the bat, then the contract would define certain milestones or work quotas.
Milestone: Working upload function.
How do you define working? Does it have to be 100% bug free, what items are considered in scope for that upload function? Does it have to accept every file type, does it have to exclude certain file types? etc…
What you consider a finished milestone, your developer and a court of law may not.
Another option would be to say you get X% for every Y hours you work up to a ceiling amount.
Great, now the developer can spend 100 hours on something that should only take 10 to increase his equity share. And once he caps out he has no incentive whatsoever to work on the project. He has his share, even if he does nothing else he owns that share.
Wouldn’t it have been awesome to work on Facebook at the beginning and say that you got 10% equity in exchange for 1000 hours of work?
does it make sense to set a length on this contract and say we renegotiate a new contract after this expires? That way if after a year we’re making money and can pay people salaries rather than in equity, it’s already built in that new contracts are required…
Now you’re just insulting the developer. Hey, come take a giant risk by working for equity and if things take off I reserve the right to take it all away in exchange for whatever I feel like negotiating with you later.
All of the above options are bad, partnerships and equity shares are extremely complicated for a reason. If you want to reward your developers with shares as part of their compensation then go for it but you better be bringing an awful lot to the table if you plan on keeping 85% of the company to yourself.
I would look at it this way, if you’re bringing 100k to the table and you’re giving me 10% then you consider my worth to you to be approximately 10k and that’s how much work you will get out of me.