Partnership Question
I know there are tons of partnership questions, so I hope it's ok to add another one to the mix.
I have been bootstrapped my own software product for the last year while still having a day job. The software is for small/med manufacturing companies. I pitched it to a contract IT company (his clients would be my customers) and they are interested in forming a partnership. I think this would be a win-win, but I'm curious how it should be structured. I will have to quit my day job to finish programming it, he would probably be "CEO" since his reputation with existing clients is valuable and he has more business expertise. Isn't the percentage of time he works on it relevant to ownership? If he is CEO, does that mean he has to have majority ownership?
What he offers/risks
- Business expertise (running growing company)
- customer access/sales experience
- Risking reputation and current client revenue
- Likely could get increased revenue to the IT company due to the synergy. (Agree to buy the software, then contract IT services.)
What I offer/risk
- Quit my day job. (Only once we have our first customer lined up. Revenue would support me.)
- 10 years manufacturing background as mechanical engineer. I know and speak the language.
- Initial work building the product/company. (No current sales though.)
3 Answers
I think you have bigger questions to ask. As I understand your question, you personally own the software but have no company. He has a company. He wants you and he to create a new company ("form a partnership"), which would not include his present company. Correct? It's not clear if you actually mean a "Partnership".
Then what happens? You contribute your software to the partnership? Does he contribute anything?
He could give your software away and still make money from it in his IT company, "due to the synergy". You would get nothing.
Instead, contribute the software to his company and get ownership in his company.
If he won't do that, (probably not), form a company yourself and make an agreement with him to be your first distributer (wholesaler). Pay him a percent of any sales he makes.
Even though he may have skills, I don't see why you need him as a co-owner of your business, or why he needs the headache of ownership in your business, and there seems to be some conflict of interest as well. Make a clean business deal and you both might benefit.
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Well said, and this will really give you a good estimate of how seriously he sees his involvement. – Johnjohn 12 years ago
Isn't the percentage of time he works on it relevant to ownership?No. You can work full time at a company and not have any ownership.
If he is CEO, does that mean he has to have majority ownership?No - ownership is decided by whom owns the shares (the stockholders). You don't have to have shares if you're a CEO and you don't need to own shares to be a CEO. (Its common, but not necessary).
Having said that, how are you going to motivate him to do his part? Salary or shares?
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He's not planning on taking any salary. He doesn't need it. He will own a portion. I'm wondering what is a fair percentage. He doesn't want to do straight 50/50 (I've heard that makes for difficult decisions). But 51/49 could work. Does it seem fair if I owned 75% though? If so, how can I own majority and yet he is CEO? Who has the last say? I'm looking for some ball park numbers of what people think. Thanks! – Scott J. 13 years ago
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@ScottJ. Shareholders with the majority stake always have the final say. – Dnbrv 13 years ago
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I think you should read/reread the answer of Joel regarding fairness, perhaps it could cast some light on Ryan's answer: The owners are the ceo's bosses http://www.brightjourney.com/q/forming-new-software-startup-allocate-ownership-fairly – Pdjota 13 years ago
why not just enter a licensing deal? You get cash to continue development, he gets distribution rights.
