How can this be an equal partnership?
I have a business.I met someone for a completely different reason, but we got along so well and we eventually started talking about starting another business (like the one I already have,but as partners).I would consider this person to be a friend now,we get along very well and we have the same ideals.Its been about 3 months, and we've decided to open a business that can only operate on my skills (based on my profession).He will quit his job and manage the business full time, and I'll be there half-day,as I have to be at my other business.He'll be contributing about 20% of the capital.We've spoken about him getting a 25% share because I'll be doing all the intensive labour and I'll contribute most of the capital.
The problem is, and it only occured to me later just before signing an agreement,I have all the capital I need to open this business alone and I could pay someone a MUCH LESS salary to do the work he will be doing.The 20% that he's putting in,I could make up in a month and as it stands,I don't need it.The deal he is getting is like someone paying R100 to get returns of R400+ every month. I don't want to sound greedy, but this guy would be getting a heck of a deal. I'm so confused about what to do because I do not want to spoil the friendship and this is someone who I'd go into many ventures with. We've already verbally agreed to do this, but I don't think it will be fair to give someone 25% of a very profitable business, after contributing so little-and the fact that I'll be doing the hard work which will bring in the profits.How can I make this a fair partnership without ending the deal with him?
Maybe I just need another perspective on it, but I urgently need advice on this, as we have time constraints to open.
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If it has the potential for success then you could possibly get infusion from VC later at which point they will probably insist on diluting his 20% stake because he will be just a secretary. The problem could end up resolving itself and you won't have to be the bad guy either. Just a thought. – Maple Shaft 13 years ago
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I don't think this question can be answered reliably with the vague description of "I'll be doing all of the intensive labor" and your characteristic of him not doing anything important. I also don't understand how you contribute half time work, he contributes fulltime work, and you're doing all the work. From my experience product development (assuming you're the "engineer" here) typically only represents a third of a successful business. In addition, how could this guy be someone you'd like to partner with in the future and yet he can't bring any more to the table than this. – Umassthrower 13 years ago
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What does "basically a secretary" entail? Who is responsible for finding customers? Who is responsible for supporting customers? Who is responsible for the product roadmap? If the answer is you in all of these cases then you don't need a partner. If you expect your partner to do all of these things then 25% seems low to me. – Umassthrower 13 years ago
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@umassthrower Spot on. That should be an answer. – Maple Shaft 13 years ago
1 Answer
Is he or will he be contributing something that an ordinary employee would not? Remember employees call in sick, leave for various reasons and are most concerned about themselves, not the business.
If what he is doing is something any employee could do, then what you should have is an employee. If on the outer hand he brings skills and judgement that an ordinary employee does not and those skills and judgement will make a critical difference to the success of the venture, then perhaps a partnership is appropriate.
You state: "this is someone who I'd go into many ventures with" which sounds like more than "just an employee".
Perhaps what you two need to do is sit down and re-negotiate the percentages?
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Thankyou for your response. This is what's also bothering me.As a partner, he would definitely be contributing more than an employee in the sense that he has an invested interest.Everything he does will be better than an ordinary employee and his level of committment will be higher.That's about it and ofcourse, his capital contribution. What my collegues (same profession) are saying is, it's not a fair partnership considering both of our input.It's like being an engineer with a highly lucrative business,and a partner who gave 20% capital who is basically a secretary earning R50000. – Entrep1 13 years ago
