Ownership % for start up
afs24 subscriber Posts: 1
edited August 2009 in Startup Funding
Three partners are in the process of buying a company. We are going to buy for $140k. We are trying to find a fair way to allocate ownership interest? Numbers below don’t add up to 140k but we will figure that out...the below is just initial discussion.
Partner 1 - Founder an expert in the industry. Will bring substantial accounts in the first 12 months (25% revenue growth) and will be making day to day decisions. Will not be putting up any cash up front. Will be accountable for capital investments etc going forward but not contributing to initial purchase. He will not be drawing a salary for role but will be covering hours and approving decisions made by salaried GM. Lives right next door. It`s already agreed all decisions will go through him. Partner 2 - Does not know the industry and just wants to invest money as an "angel" type of investor. He does not want any involvement but he is willing to help during start up stages and put effort from time to time. Lives close and will cover here and there when in a bind. His initial recommendation is to put 25% of the $140k for 25% ownership. Partner 3 - Does not know the industry but highly educated and willing to learn the business. Willing to put about 20 hours a week. Will do his part. Currently employed and will not leave for this business but willing to invest and be a part time strategic partner. Good connections and may be able to get additional business. He is willing to put up $50k for a TBD ownership %. Lives out of state. We would like your recommendation of ownership % for each of the owners based on the above. Partner 1 is driving the ship and is the one who got partner 2 and 3 involved and ready to invest. It is importatnt to note without partner 1 thisdies. Partners 2 and 3 can be replaceable and capital can be gathered elsewhere but that is not something we want.
afs245/11/2009 7:18 PM
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There are really four distinct areas to consider:
The ownership (equity)
Distribution of the operating results (profits/loss)
Compensation for individual contribution (time/results/etc)
In working with clients- we find that determining each of these separately is a good way to go.
If you want to discuss your situation, in confidence, send me a pm or contact me directly.
1. Why is this a partnership and not a stock deal? Then you can price your shares and allocate accordingly. 2. Here`s the way I would write it (note: this is off the top of my head and without really knowing the details of an of the partners involved). GM would get 50% and the rest would get 25% (or any number based on what they invested.) I would also write a consulting fee contract into the partnership, so when they help they get paid for their time.But you really need to have a very attorney who is an expert at partnership contract help you with this one. Nothing is more important than your partnership contract because you three will be married to this business for years and the quickest way to turn a friend into an enemy is to borrow money or go into a partnership with him. A really good attorney can go a long way to having that not happen to you.I can`t stress enough to find the best attorney you can afford and have him sit down with all of you to write out the contract. It will be the best money you spent on the business.
Shoot me a PM and I`m happy to share.
Hi Eric, can you send me a copy of your Excel tool as it may just help me out
2. The partner that will work should be given compensation agreed by the three partners.
3. Dividend will be declared by the end of the year (recommended).