I need the money but the partnership scares me

marketprinciplemarketprinciple Posts: 1subscriber
edited January 2008 in Startup Funding
Here`s my question:
 
I have an investor that wants to help me start an internet business.  I`ve already run the same business for an entrepreneur (no noncompete) and am very confident that I will be profitable.  She intitially offered to loan me the money to get started, but as she learned more about the business she has understandably become interested in a partnership. 
 
I`m not comfortable with giving up half of my business simply because she gave me some startup funding, but I also want her to benefit.  And, I can`t start the business at all without her help.
 
The business will be an LLC, by the way.  She says, fairly, that she`s not sure if she can contribute time to the business for some time, but would like to get involved in the future and possibly quit her job.  She is open to ideas, but is concerned that I may choose not to involve her if I`m doing very well, which may be true.  Is there a way to set up the operating agreement to cover both interests?
 
Oh, and to complicate the matter, this is someone that I am personally involved with.  I love her and want to help her for helping me, but I`m aware that personal relationships can go badly.  I want to be able to avoid an emotionally charged battle if they do go badly.
 
Thanks very much.
marketprinciple1/8/2008 11:57 AM

Comments

  • robertjrobertj Tampa Bay, FloridaPosts: 0subscriber Member
    There are several ways to approach this situation - starting with
    1. How the equity (ownership) will be divided
    2. How the results (profits) will be distributed
     
    Of course your last (oh by the way) paragraph is actually the most complicating factor.
     
  • NuevolutionNuevolution Posts: 30subscriber Bronze Level Member
    market,
    There are ways to have your friend with benefits invest in your company without you having to sell or give away 50% of your company or idea. See, everyone is under the impression (most start ups) that because a person invests in your company you automatically have to give up a certain percentage of your company or that they own half of your business "that is wrong, and not true"
    Your friend can be on either side of the equation, she can own half of your company or can be an angel investor, and instead of owning half of your company she can buy "company stocks" and invest in your start up.<--- proper way to do things
    From what I read in your thread, you love this girl, which it`s fine.
    My questions to you are:
    1. Do you plan on staying with this person for a long time? Do you see her in your future?
    2. If things don`t work out between you and her, are you ready to give up that 50% of your company and have to put up with her for as long as she is an owner?
    Don`t mix personal (love life) emotions with your business. I think that what you need to do, and this is to give her an incentive. I don`t know if you need a board of directors in an LLC, (I never cared for LLC`s, I`m a full S-Corp) but what you can do is have her sit as a board of directors. If she is concerned about you ditching her in the long run, then by having her on the board of directors you are guaranteeing her that she will be part of the board but not own 50% of your company.
    Let me give you a insight on what happened to me two years ago. After running my business for almost 3 years, I decided it was time to Incorporate, and I made the mistake of borrowing an X amount of cash to do all the filing, licenses, office space and so forth.
    After talking with a good friend of mine (college buddies), he insisted to loan me the money with no guarantee or promissory note on how I was going to pay him back, after all we were good friends and when he didn`t have a place to stay I offered him a place, food, and was paying for his bills (because thats what friends are for, to help each other out).
    Well, one month after we Incorporated he told me that for the past year he was claiming 9 dependents on his Income tax and needed me to lie to the IRS telling them that for the last 9 months he was investing in my company. My answer to him was "NO".. because I didn`t want to get into his business with the IRS "The friendship starts going sour" for not sticking up for him.
    After getting over 100 threats, I decided to seek legal advise and cover my end, well after looking at all the paper work that was filed with the state and what was recorded in the minutes. I found out that I never included him as 20% owner of the company because he was going through a divorce and requested that I didn`t count him in because that would mean she owns 10% of his 20%. So, after talking with him. I told him, that the money that he had invested in my company was going to be returned to him "the total about + some", but since he had forced me to get legal advice, that I used his money to protect the company and that he would only get what was left after paying lawyer fees and so forth. He walked away with $12.00 and a jaw breaker that was sitting on my desk for more than 2 months. The moral of my story is:  Don`t  assume that because they loan you money they own 1/2 of your company or that they have to be owners.
  • robertjrobertj Tampa Bay, FloridaPosts: 0subscriber Member
    Edgar,
     
    Lending money is not the same as investing (buying securities or equity). If your friend lent you the money - he should be entitled to repayment with interest; but not stock (ownership) in the company.
  • marketprinciplemarketprinciple Posts: 1subscriber
    Thanks for the feedback.  Do you guys have any idea how I could structure the operating agreement to give her an opportunity to buy in later, if she wants in on the business?  Or is there any other specific suggestion on how that would work. 
     
    How would I structure the loan?  Would it be included in the operating agreement, or would it take place outside the realm of the business.  I`m assuming that she would want some recourse from within the business if I did not pay her.
     
    Thanks.
  • robertjrobertj Tampa Bay, FloridaPosts: 0subscriber Member
    My responses are below - underlined for separation
     
    Thanks for the feedback.  Do you guys have any idea how I could structure the operating agreement to give her an opportunity to buy in later, if she wants in on the business?  Yes - that can fairly easily be accomplished 
     
    Or is there any other specific suggestion on how that would work. 
     
    How would I structure the loan? Depends on whether it is intended to be a personal loan or a loan to the business  
     
    Would it be included in the operating agreement, or would it take place outside the realm of the business. Typically it would not be part of the operating agreement but would be a separate set of documents (see above).  
     
    I`m assuming that she would want some recourse from within the business if I did not pay her. Again there are ways to accomplish this
     
    Thanks.
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