Business Partner Relationship

[steppinthrax]

My old boss contacted me for some work he wanted done. This was another 1099 situation. Anyway he wanted me to do some remote work for a client. Later on he suggested that he's business is relatively new and if we work out he'd need a partner for his business. We worked with each other for about 2 years and had a good relationship. He's suggesting later when we work with each other for a while and see how things are going. He is in need of someone who is on the technical side and he liked working with me.

Anyway I embarrassingly don't know much about what a "business partner" is. Yeah I googled it, but the definition just more/less means you work it out between yourselves. I get it that you own a "share" of the business, but I suspect it's less about money and more about ownership. I guess at the end of the day (if you quit) you're going to get a big chunk of change. I'm 35 right now and I made around 305K last year. It's a lot of fucking work, but I would only do this kind of arrangement for that or more (like 400+). My suspicion is I would get a "cut" of the work I bring into contracting. So I would have a low base salary (150K or so) and if I bring in a multi-million dollar contract that I would bring in a portion of that while working on as a one of the potential PMs. So potentially I could earn close to 1M or so a year.

Does anyone know how this type of shit works???

 

[herm0016]

negotiate with him. come up with terms you like and have your lawyer draft a contract. make sure you actually receive voting shares of the company. yes, private company's can still have voting and non-voting shares. Being a partner does not mean shit until the company sells or you get bought out. make sure you are not getting diluted by other investors / new rounds of raising capital. PUT THIS IN THE CONTRACT. along the lines of % of business that is mine will stay mine and stock must be issued if the number of shares is increased.


daym. that's some ATOT baller money. We work our asses off for a hell of a lot less than that. stupid fortune 500 companies.

 

[steppinthrax]

This is kinda what I'm thinking. It's wide open, but since he's bringing me into his business I imagine he'd have the say on what he wants.

 

[Darwin333]

The simple answer is it will work however yall negotiate it to work. There really isn't a set in stone format for business relationships like that. I don't know what kind of start-up money was required but if it was significant it wouldn't be unreasonable for him to expect you to buy in if you want any sort of ownership. He could also just give you a position that is akin to vice president. There are a lot of different scenarios that could be negotiated.

Now if you think you can pull in multi-million dollar contracts the first thing you want to negotiate is profit sharing at the very least on contracts that you bring in but you might want to see what he thinks about profit sharing all of the companies profits. Since you say you are the more technical of the two that gives you incentive to help out on all of the companies projects and not just the ones that you bring in.

 

[Darwin333]

This is kinda what I'm thinking. It's wide open, but since he's bringing me into his business I imagine he'd have the say on what he wants.

Well yes and no. It's a negotiation, so you both get a say on what each of you wants and hopefully you meet somewhere in the middle where both are happy. With that said, I'd see what he has in mind first and then go from there.

 

[steppinthrax]

Well yes and no. It's a negotiation, so you both get a say on what each of you wants and hopefully you meet somewhere in the middle where both are happy. With that said, I'd see what he has in mind first and then go from there.

This makes sense, thanks. That's kinda what I was thinking, but you put it in words...

 

[Humpy]

I made around 305K last year.

Does anyone know how this type of shit works???

I'd be happy to help.

I'll PM you my payment terms.

 

[DaveSimmons]

Be careful in assessing the value of any ownership stake. It may be difficult or impossible to "cash out" of the partnership, especially if it is not set up as an LLC or S Corp. with company stock. Even with stock, there has to be someone willing to buy it, and there may be limitations on when or how you can sell it.

With an S Corporation you'll get distributions based on company profits and your ownership stake. These are taxed like ordinary income not capital gains, so enjoy the 32% federal bite plus any state taxes. Also, some company expenses like the health care plan are treated as taxable income for owners.

Everything needs to be put in writing. Even with perfect ethics and the best of intentions memories can get hazy after years, and each side might interpret a verbal discussion differently. If it isn't in writing, don't expect it to happen.

As an example: if you don't own stock, what are you owed for any clients after you leave? Our company has ongoing annual licenses with a very high retention rate so only getting paid for year 1 would be a major loss.

 

[Jeeebus]

If you don't consult with a business attorney (and you really should), then my next best advice is that ANYTHING of marginal value to you is put in writing and signed by both of you. My law practice is 90% business litigation/disputes, and 90% of those are a result of people not putting in the effort on the front end to actually define the business relationship and other material terms.

"We're friends/family/Chinese/etc. - we don't need anything more than a handshake." To give you some perspective - I won a jury trial in Texas in July on a case that went on for 2 years and which would have been avoided if my clients and the other side had bothered to sign appropriate operating agreements and other business venture documents up front. They didn't. My clients spent over $100k on me and the other side spent over $200k. Had they spent $3k - $5k up front on a lawyer or put the effort in themselves, the lawsuit never would have happened. Ask them how they value handshake deals at this point.

 

[DaveSimmons]

Agreed. Like I tried to make clear it's not about whether you trust each other, it's making everything clear and making sure you understand it all the same way up front, in a form that you can refer back to later.