Partnership: what percentage to give my partner

[anonymouschris]

I decided I wanted to start a business...

I raised the capital, and recruited a good friend of mine to be part of the partnership. He has since helped me a lot in creating the company identity, image, working with my web designer etc. He is also a resource for tapping in to the network I need to get into. He will be doing a lot of the marketing, networking necessary for the company's success.

I came up with the idea, am responsible for the entire start up captial (20k), and am the strategist of the business. He has been more integral in the actual operations.

What is a fair percentage to give him if he has contributed no capital and only time.

I am confident to say that I don't think I would be able successfuly start the business without him though.

 

[PowerMacG5]

Give him what you feel is right. Why not do a 50/50 split on all profits if you are do equal amounts of work after you start up, with the condition that you get your 20k investment back in full on top of the split?

So say you make 5k profit every week. 1k goes in towards your "payback" plan, and the other 4 gets split evenly.

Might I ask what kind of company you started?

 

[PingSpike]

Man thats tough...I would have asked him to front 50% of the capital just so you could split it right down the middle and prevent any ill will.

 

[Ika]

Originally posted by: PingSpike
Man thats tough...I would have asked him to front 50% of the capital just so you could split it right down the middle and prevent any ill will.

agreed. i was thinking of something along these lines.

If you don't feel comfortable about this you could ask him what he thinks.

 

[iwantanewcomputer]

i'd say once you take out your capital plus like 10% interest, pay a fair wage, or what ever you pay yourself

 

[PimpJuice]

Originally posted by: PowerMacG5
Give him what you feel is right. Why not do a 50/50 split on all profits if you are do equal amounts of work after you start up, with the condition that you get your 20k investment back in full on top of the split?

So say you make 5k profit every week. 1k goes in towards your "payback" plan, and the other 4 gets split evenly.

Might I ask what kind of company you started?

50/50. You want him to think that the company is as much a reflection of his efforts as it is of yours. Giving him the short stick might make him less motivated. Make sure you get your 20K back though.

 

[MichaelD]

Originally posted by: PingSpike
Man thats tough...I would have asked him to front 50% of the capital just so you could split it right down the middle and prevent any ill will.

That's what I was gonna say. It's a tough situation. Though you fronted the cash, he may feel that his time and effort was worth $20K/50% of the profits.

/me watches this thread...will be interesting to see the responses

 

[anonymouschris]

Originally posted by: PowerMacG5
Give him what you feel is right. Why not do a 50/50 split on all profits if you are do equal amounts of work after you start up, with the condition that you get your 20k investment back in full on top of the split?

So say you make 5k profit every week. 1k goes in towards your "payback" plan, and the other 4 gets split evenly.

Might I ask what kind of company you started?

well, that is not entirely fair since I've taken all the risk and came up with the orginal idea. I also spend an equal amount of time on the company. basically, he has nothing really to lose if the company goes under accept for his time. i've lost my time and money.

to be vague, it is an online retail/wholesale. i'll update the AT community when it's up and running.

 

[D1gger]

I am involved in one partnership that is very similar to what you are describing. In that case, the partner who did not contribute any capital, but is essential in making the business successful has a 20% share of the equity. He also receives a bigger year end share of profits before distribution to the shareholders.

You may want to consider having a lawyer draw up a partnership agreement that spells out all of the details and expectations. My experience has been that every partnership eventually faces difficulties when one partner has a different understanding of the situation than the other partner and the agreement will help to define the relationship, or at the very least define the dispute resolution procedure.

You may also want to have his equity share granted only after some time period has passed. You wouldn't want to give him 25% of your business and have him turn around and sell it next week.

 

[Skiddex]

a partnership usually entails people who front capital for a start up buisness. why not salary him and offer some kind of profit sharing until you figure out how it is going to do? maybe 10%?

 

[spidey07]

If you fronted the capital, then give him as little as possible. 5-10 percent, or just pay a wage.

There is no risk for him, therefore he shouldn't be rewarded.

 

[anonymouschris]

please consider the following for future responses...

- i front all the initial start up capital
- i came up with the business idea
- i cannot ask him to front capital b/c he is currently unemployed (aspiring playwright getting in to grad school)
- assume we work equal hours
- paying wage is not an option

i will update as things come up.

 

[Canun]

Well, on the tax return your capital account would have the positive balance. If your company runs losses for a few years (typical in startups), you will be able to deduct part of the loss on your individual return, while your partner would not due to capital account balance.

As far as percentage, to be honest, you probably should have tackled that before starting.

 

[Deleted member 4644]

Hard to say....

I think in the end it depends on how much of his time he has put into it. For example, if he has been working full time (40 hours) for months, I think you should give him a decent percentage (20+ ?) because he could have been making money elsewhere.

However, if he has just been putting in a few hours here and there, I would aim very low, and maybe pay him a salary once you start making money..

Keep in mind, aside from TIME (which is money, in a way) you have put in 100% of the risk.

 

[j00fek]

50% or dont go into it with a partner

 

[anonymouschris]

Originally posted by: D1gger
I am involved in one partnership that is very similar to what you are describing. In that case, the partner who did not contribute any capital, but is essential in making the business successful has a 20% share of the equity. He also receives a bigger year end share of profits before distribution to the shareholders.

You may want to consider having a lawyer draw up a partnership agreement that spells out all of the details and expectations. My experience has been that every partnership eventually faces difficulties when one partner has a different understanding of the situation than the other partner and the agreement will help to define the relationship, or at the very least define the dispute resolution procedure.

You may also want to have his equity share granted only after some time period has passed. You wouldn't want to give him 25% of your business and have him turn around and sell it next week.

i started my friend at 15%, but he is asking it to be upped to 20% - 25%. i was going to add to the 15% anyway since it wouldn't be enough for him to live off of if this was his full time job. i think 25% is way too much, and am currently contemplating 20%. if he decides to bail he is obligated to sell me his share of the company at his ownership percentage x companies net worth for the year.

 

[anonymouschris]

50/50 is never a good idea in parterships as far as i understand. creates too much tension. one person has to be recognized as the dominant partner.

 

[anonymouschris]

Originally posted by: LordSegan
Hard to say....

I think in the end it depends on how much of his time he has put into it. For example, if he has been working full time (40 hours) for months, I think you should give him a decent percentage (20+ ?) because he could have been making money elsewhere.

However, if he has just been putting in a few hours here and there, I would aim very low, and maybe pay him a salary once you start making money..

Keep in mind, aside from TIME (which is money, in a way) you have put in 100% of the risk.

we both expect him to put some serious hours in to the company once it is fully operational, but in the preliminary stages we can only assume what he'll actually put in. we estimage at leaset 20 hours a week and if the company proves to have a lot of potential we'll both work on it full time.

i need to remind you all that he has decent contacts and i need him to get me networked in the community i want to tap in to.

 

[Canun]

Originally posted by: anonymouschris
50/50 is never a good idea in parterships as far as i understand. creates too much tension. one person has to be recognized as the dominant partner.

45/55 then. Or 49/51.

 

[chambersc]

40% at the very least 50% at most. I'd recommend 50% from the description you provided. The money was integral to the startup but the connections and the networking will provide sustained business. Your last line of "I coulnd't have done it without him" is icing on the cake. The fair and smart thing would be 50% Don't cut off the nose to spite the face (ie lowball him because he didn't raise capital)

 

[BigJ]

Risk = reward. It's a very simple concept.

There was very relatively little risk for him, while you would've been out almost a half year's salary for most people.

 

[imported_LoKe]

51/49.

 

[JS80]

You have to determine $ amount to the work he did and allocate towards the capital. Otherwise pay him cash now and give him 0%.

FYI you can't arbitrarily assign him a % due to accounting restrictions.

 

[anonymouschris]

it's funny how the majority of responses on this thread are either 50/50 or at a minimal. very few in betweens.

 

[BigJ]

Originally posted by: anonymouschris
it's funny how the majority of responses on this thread are either 50/50 or at a minimal. very few in betweens.

Well we have a lot of people that like to live in the real world, and a lot of people that like to spew Idealistic crap.