determining percent ownership

[prathymna]

Hi,

I am trying to determine the percent ownership for each of 4 partners in a new speciality licensed business.
contributions for each are as follows

me= know the local market, initial survey and location plus in future manage and run the licensed business as a manager
person2 is in similar business and has lot of ideas and expertise to incorporate
person3 he introduced me to person2
person4 contributes his name to title and credit to get lease started

offer on table
me 40%
person2 25%
person3 25%
person4 10%

i want atleast 50%. please let me know if it is fair.

thanks

[Fulcrum]

Who's putting in the money and taking the most risk?

[prathymna]

contributions are in proportion to percent share.
I risk my current job and future earning if the business doesnt take off and
lease (5yr term 35k each yr) and inventory (80 to 100k) costs equally among all 4.

thanks

[Harold Mansfield]

contributions are in proportion to percent share.
I risk my current job and future earning if the business doesnt take off

Everyone takes the risk of failure. You can't dish out shares based on that. However financial risk is tangible.

[prathymna]

how can we get partnerships based on contributions to get this business started and running? How can I maximize my percent as I have the most input to the idea and success of the business?

[Fulcrum]

I hate to say it, but you cannot include your current job, and the potential future earnings it may give, as part of taking the most risk. I get that it feels and looks that way to you, but put yourself in the shoes of your other partners and ask yourself that question again. What I see right now is you have 4 people sharing the risk equally (assuming your taking a salary from day 1.

What business are you going into? Specialty licensed doesn't help us help you.
Who's the driving force behind getting the business going?
Are you drawing a salary from day 1?
If so, is that salary comparable to others in the field or will it be reduced?
Why is person 3 getting 25% ownership for an introduction?

[Harold Mansfield]

You make it sound like it's your idea, you're doing most of the work, and you're taking the biggest financial risk.
If that's all true, then why do you need the other 3 people?

[Paul]

If it’s “your” deal, meaning you are the primary driver and there is no deal without you and you are going to be the manager/operator then you can command 50% or whatever you can negotiate. However, if any one of the others is also critical to the business then there may be an issue.

If the financial risk is equal among the remaining 3 then those shares should be equal, unless there is some true “added value” or contribution from one of them.

Sounds like the “lease” guarantor may have extra risk and may deserve extra equity compensation. Introductions are usually worth a little but not 25%. The lease guarantor is probably worth more than the introducer. The person in similar biz with ideas is only worth what is actually contributed expertise wise.

Hard to say without more detail but in general seems the lease guarantor needs better deal and the introduction person deserves less.

[Business Attorney]

Every situation is different, but if everyone got what they thought they should get, in most cases it would add up to more than 100%.

The process is give-and-take. From what little information we have, it sounds like #2 and #3 getting 50% between them is excessive. Particularly, if the most significant contribution of #3 to the ongoing business (other than making his pro rata contribution based on whatever share he ends up with) is the introduction of #2, then it sounds like he is getting a larger share than he should.

Again, this is based on what little we were told by you, but it is my initial reaction to the split.

[BizAdvisor]

- For starters, #3 should only receive a thank you... Not a percentage of the company.
- If #4 is the financial backer, they should receive a higher percentage as an investor and silent partner until their percentage can be bought out with interest.
- You and #2 seem like the primary partners and should split the remaining percentage 50/50.

Yes, this means #3 should be out of the game, #4 should receive 50%, and you and your partner should split the remaining 50% until #4 has been bought out. Then you and #2 should split the percentage at a fair and balanced 50/50.

Aren't business partnerships grand?