I recently met with a former student who started a software company marketing a Web-based product to local governments. After a successful introduction in Wyoming, he has moved his marketing efforts into the Utah market and is expanding into other states in the Rocky Mountain region.

He has learned how to scale the business, has shortened the sales cycle to a matter of weeks and - best of all - has achieved profitability. In discussing issues involving long-term strategy and corporate governance, however, I was appalled when he described his ownership structure. During the initial launch, he gave 50 percent ownership to a programmer who helped with the coding. When I asked him why, he said that the individual was an old friend who had done a good job. The friend is no longer with the firm and has gone on to other endeavors.

My former student now has an ongoing enterprise and is working 10-plus hours a day to make it a success. He does not have ownership control, is a partner with an uninvolved party and has created the classic ownership dilemma for himself.

There is no magic formula on how to handle ownership issues, but here are a few guidelines summarized from discussions with entrepreneurial professionals.

. Establish an option program early in the life of the business. Instead of giving ownership to employees, grant an option that gives them a claim against the increase in value of the firm. Options have the additional benefit of encouraging employees to remain with the firm, rather than taking the stock and looking for other opportunities.

One concern in issuing stock over time is the potential impact on taxes. A grant of stock (other than Founders stock) may create an income event for the employee during the year of grant, and therefore a tax liability. Talk with your tax professional to understand the full impact on both the company and stock recipient.

. Project your business model into the future. Try to anticipate what the business will be like in 10 years based upon two-year increments. What resources will you need? Will you need to raise funds, or use stock to acquire a competitor? These models can be created as best/worst case scenarios. Project how you might utilize stock to accomplish each scenario and see what impact current decisions will have on your future plans.

For example, if you have a practice of giving 10 percent ownership to each key employee, will you have the ability to give an investor 20 to 40 percent of the company for needed capital? Will you have enough stock to control the firm in the future and to make the decisions that you have outlined in your two-year models?

. Forecast your future liquidation event. One longtime investor that I spoke with told me that he counsels new company founders to be prepared to own 20 to 30 percent of the company by the time that they are ready to sell or to go public. He wants the founder to be realistic with how he uses stock along the way and not to be surprised by the impact of dilution on his ownership as he grows the firm.

. Create a board of directors and seek their counsel. A board of seasoned professionals will be useful as you wrestle with ownership issues. Your board may best handle the granting of stock ownership and/or options. The dilemma of ownership is not a science, and it is not easy to administer.

Be careful, be cautious and look at the big picture before making any commitments.