Conflict related to Partnership Percentage

[wwparttime]

Hi,

I would like to know what would be ideal partnership percentage division between 2 members. I had started the business alone 5 years ago, and in these 5 years I got a good list of clients and good reputation in the market. After 5 years, I decided to step back and work on my other goals. Meanwhile, a friend of mine showed interest in my business. He was trustworthy and ready to take the business forward with my minimum or almost nil involvement. In such a scenario what would be the ideal partnership percentage division? I recommended I would keep 67% as the whole business is set-up by me. His involvement has certainly been fruitful and business is now 3-fold than it was earlier. However, the friend is now demanding 50-50 or 51-49 division.

Please give your suggestions.

Thanks.

[Harold Mansfield]

Hi,

I would like to know what would be ideal partnership percentage division between 2 members. I had started the business alone 5 years ago, and in these 5 years I got a good list of clients and good reputation in the market. After 5 years, I decided to step back and work on my other goals. Meanwhile, a friend of mine showed interest in my business. He was trustworthy and ready to take the business forward with my minimum or almost nil involvement. In such a scenario what would be the ideal partnership percentage division? I recommended I would keep 67% as the whole business is set-up by me. His involvement has certainly been fruitful and business is now 3-fold than it was earlier. However, the friend is now demanding 50-50 or 51-49 division.

Please give your suggestions.

Thanks.

I can only say what I would do. 50-50 or 51-49 isn't happening without a financial investment equal to the value of the business. That's the real world.
You offered 33% and he countered with 50%? Nope.

If he's been that much of an asset and you want to give him more and it's still a good deal for you, I'd counter with 40% of net and he takes on a share of ALL responsibilities and liabilities, take it or leave it. That means putting his name on the paperwork as an partial owner responsible for the good and the bad.

I think a better suggestion is your original offer, which I think is more than fair since in this exact scenario most people just get a raise, not ownership with no money down....and the opportunity to buy in for up to 49%. Shared risk and all.

The big picture is that he didn't build it with you. He helped build on top of what you've already done. Any good employee can increase sales, but the foundation and reputation that you've built that allowed him to jump in and hit the ground running and make money for himself is worth more than he's giving credit for.

I don't think sweat equity is worth half. Money is worth half.

Ultimately the ideal agreement is up to you and him. None of us can really make that determination for you, and what I'd do may not be the best course of action for you.

JMO of course.

[cancanconat]

I think it depends - you didn't really state a timeline here. You comment that he has increased the business three fold....so has he been involved for a long time now? How long? If so, that complicates things. Did you not have an agreement in place when he started working with the company? If not, has he been compensated via salary for his services in growing the business thus far? If the answers are no to the contract and yes to the salary - then....you are calling the shots and he needs to buy in at a % of the value of the company at the time of buying in - doesn't matter that he helped build the value of the business....if he was compensated like any other employee, that is pretty much life - it's the way any company works....employees do their jobs, get paid for it and the company hopefully grows. Then, going forward you can have an even split or a split that is reflective of his % of buy - in AND you should be compensated on top of that for YOUR contribution in building the company. That will be the hard part to figure out...but you deserve something EXTRA from him to compensate for that business that you created and built.

[wwparttime]

I think it depends - you didn't really state a timeline here. You comment that he has increased the business three fold....so has he been involved for a long time now? How long? If so, that complicates things. Did you not have an agreement in place when he started working with the company? If not, has he been compensated via salary for his services in growing the business thus far? If the answers are no to the contract and yes to the salary - then....you are calling the shots and he needs to buy in at a % of the value of the company at the time of buying in - doesn't matter that he helped build the value of the business....if he was compensated like any other employee, that is pretty much life - it's the way any company works....employees do their jobs, get paid for it and the company hopefully grows. Then, going forward you can have an even split or a split that is reflective of his % of buy - in AND you should be compensated on top of that for YOUR contribution in building the company. That will be the hard part to figure out...but you deserve something EXTRA from him to compensate for that business that you created and built.

Hi,

He worked for 6 months. Also I was involved in his training and was available to train him in different parts of the business for these 6 months as well.
We don't have any agreement. Yes, it was unprofessional from my side, but considering he was a friend, I promised him "verbally" 33%. And in spur of the moments, I also said that in future we can increase his share to 49%.
In the 6 months he worked, he was paid as per his share of 33%. So he was well compensated (he earned 4 times more than what he earned in his job).

[Fulcrum]

We don't have any agreement. Yes, it was unprofessional from my side, but considering he was a friend, I promised him "verbally" 33%. And in spur of the moments, I also said that in future we can increase his share to 49%.
In the 6 months he worked, he was paid as per his share of 33%. So he was well compensated (he earned 4 times more than what he earned in his job).

Seems to me you do have an agreement. It may be verbal, but it is an agreement. Even the payments he received during the 6 months reflected the verbal agreement.

So let me ask you this:

Are you a man of your word?
Are you someone I cab do business with on a handshake and expect both of us to uphold each end of the agreement?

This post may make my response in the other thread moot. Any chance the mods can merge these to threads?

[nealrm]

It sounds like you have stepped back and he is now running the business. Unless you are willing to step back in and resume work, you will need to offer him more. Since he has grown the business by 300 percent I suggest the following. He gets 66% of current income and you get 34%. Let him buy his ownership up to 49% based on the value of the company when he started.

Don't shoot the goose that laid the golden egg. Under this plan you are making more than you did and not working.