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Advice on partnership - share of ownership
SarahW2009
subscriber Posts: 1
My husband and I are looking to buy a retail business with another friend as a 3 way partnership. My husband and I have half of the purchase price as capital and the other half the 3 of us will obtain via loans. The other partner does not have any capital to invest initally but will inject money each month. The plan is by the end of 12 months he will have paid in about a third of what we have put in as capital.
Myself and the other partner will not be working in the business and will not be taking any money out until it is making a decent profit. My husband will be working in the business full time and taking a wage.
My question is around the split of Ownership (equity), Control, Sharing of the results (profit/loss)
What would be a fair split of the above? I am happy to have equal control of the business between the 3 of us as we are all passionate about the direction we want to take and have the same ideas. Not so sure about the ownership and sharing of the results. Would my husband and I have say 82% equity and the other partner have 16% (as we put up 50% plus 2/3rds of the other 50%) - could this then change on a rolling basis as the other partner invests more money?
Also the sharing of results? Obviously as we have risked more money, is it fair to take more profits? Not sure if this is massively relevant as we are planning to plough profits back into the business to grow it as quick as poss.
Can anyone give ideas as to what they have done?
Many thanks
Sarah
Myself and the other partner will not be working in the business and will not be taking any money out until it is making a decent profit. My husband will be working in the business full time and taking a wage.
My question is around the split of Ownership (equity), Control, Sharing of the results (profit/loss)
What would be a fair split of the above? I am happy to have equal control of the business between the 3 of us as we are all passionate about the direction we want to take and have the same ideas. Not so sure about the ownership and sharing of the results. Would my husband and I have say 82% equity and the other partner have 16% (as we put up 50% plus 2/3rds of the other 50%) - could this then change on a rolling basis as the other partner invests more money?
Also the sharing of results? Obviously as we have risked more money, is it fair to take more profits? Not sure if this is massively relevant as we are planning to plough profits back into the business to grow it as quick as poss.
Can anyone give ideas as to what they have done?
Many thanks
Sarah
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Comments
Are the loans to be personal or business? Assuming you are each getting a personal loan for 1/3 of the balance required to purchase -then the ownership split at purchase would be 16.3% to your friend and the remaining 82.6% to you and your husband.
Next decision is -will the friend`s monthly "infusion" be to the company or to you and your husband. I presume that the company can use the additional capital so you`ll want it to go to the company. Set up a purchase agreement between him and the company for this purpose.In this scenario, you`ll need to calculate how the issuance of additional ownership portions (called units in an LLC or shares in a corp) will dilute your initial percentage of ownership.
Typically, distributions of profits are made quarterly although some wait until year end. I`d make the distributions according to the ownership percentage at the time of the distribution. If you form an LLC - be aware of the fact that each member may "receive" tax obligations even if there is no distribution of funds.
If you want to discuss the specifics of your situation, send me a PM or contact me directly.