Welcome to the world of when The Coder becomes a Product Manager
I've found myself in the exact same situations several times and on different sides of the stick. I've learned the hard way.
Having been buried in code and always concerning the business side of things hand in hand.. I can definitely empathize so I took some time to get a bit detailed. If you're not/have never been in the "corporate" culture, give http://scrummethodology.com/scrum-product-owner/ a read. You will see how things progress from being developer to managing the business end of things.
Disclaimer: This is my opinion driven by experience, I build things, not litigate... though I'm sure an Intellectual Property Attorney makes far more!
Offering compensation plus ownership for services provided (I'm assuming here that he/she is to deliver beforehand) can invite some unforeseen, or unwanted, risks:
You'll need a contract (or to simplify, an "agreement") covering at-least the:
- Cost of things.. net cost (total $ to get up and running) and the worth of the initial (version 1? iteration 1?).
- Once costs have been figured out you could simply create a share-to-cost ratio. (i.e.: ACME LLC has 1000 shares, each worth $10 making the company worth a mediocre $10,000 -- due to some hardware investment perhaps.)
- Ownership of the materials rendered/produced -- I can't stress this one enough. Copyright law is (and rightfully so) by default in favor of the content creator. You can, and should if nothing else, declare that you/your entity owns any and all works produced since date of employment/contract inception.
Providing compensation for works provided & to be created:
- You can pay hard cold cash (in case you formed an entity already, you should be able to bring it on as material debt so you can write it off).
- You can pay in straight up issuance of shares of your entity (The outcome of #2 in the section above-^).
- You can use a strategy called "vesting equity" wherein you create an agreement that he/she is to meet a.b.c. expectations by xyz date and must remain an active participant (employee, board member, or whatever title you want) until a date set in the future where the share issuance will be finalized.
- Both cash AND equity -- just mix it up with the above points in mind.
- Just pay cash and make sure you get sole copyright (can be as simple as him stating it in an email, receipt, etc..)
Personally, going the "let me give you some cash now so you can buy monsters & red bulls and we do a vesting equity agreement ... work some get paid some, and so forth". The caveat is that it will cost you some money to have an entity formed that has the capacity for stock issuance (S-Corp, C-corp). On the low side I remember paying right around $600~ a few years ago. LegalZoom will save you a lot vs a local lawyer if you keep things simple, check out http://www.legalzoom.com/business/business-types/compare-business-structures.html. This of course gives you some tax advantages (pass-through vs. not) rather than being a simple Sole Proprietorship or LLC.
At the end of the day, I think you can knock this out with a simple contract that identifies the parties, sets the precedence of expectations, covers your copyright ownership part and overall covers your butt in the event you need to collect.