Minority share holder/ advice wanted
I have a business partner who has contributed 15% of the total or our small business, but will be contibuting around 40-50% of the workload. He will also gain 100% profits for his own work which will be delivered through the premises. We have yet to formalise our arrangement, is a 25% share of the business fair? should he contibute 25% of running costs or should this be 25% profit only? Any advice would be most helpful.
2 Answers
As for what is fair, only you can decide that.
However, percentage equity is all about sharing of profits from dividends, which are paid pro rata, and (hopefully) eventual exit. It is nothing to do with running costs. Running costs should come out of working capital. If you have no working capital, you have no business really.
If this person is gaining advantage from using your premises, then you may gift that to them, as a perk, or you may charge them, in which case you'll have working capital.
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Thanks Steve, I have invested more than 9k, he has put in 1.5k – Lewis 13 years ago
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sorry, so we have both invested financially.things are somewhat tense as nothing was formalised at the outset, we have had a good working relationship for a number of months but circumstances changed recently when we moved to better premises and he contributed the £1500 towards deposit, now i feel he expects 50% split, which i feel is unreasonable given my own investment and that he also gains from being there and selling a seperate service. – Lewis 13 years ago
At that level ~ $10,000 startup I wouldn't use that as much of an indicator for equity split. You could ask him to get a loan out and put in more money, and maybe do a 60 / 40 if he is going to be putting in a good amount of effort into your startup.
Look at it based on the long term effort he is putting in compared to your efforts and base it more on that.
