Quesitons about partnering with someone else to buy existing business

[George22]

Hello,
I am in discussions with a potential partner ("PARTNER") to buy an existing business. I am looking to transition out of my career in finance and am drawn to the idea of owning a company. PARTNER is financially very well off and is looking to diversify his assets. I wanted to hear suggestions on how this arrangement should be structured. Below is a list of the "things" that each of us brings to the table followed by list of a few questions. Any other observations are always welcomed.

What I bring:
career professional, former lawyer, career in finance, willingness to take smaller salary in order to buy a business and gain operating experience. My potential partner and I have a long history and therefore he knows that I am someone he can trust. I will be contributing about 10% of equity required for purchase of business. After a "transition" period during which I learn the business, I will manage operations on a daily basis.

What PARTNER brings:
MONEY and experience. He had a successful career in private equity. He will contribute 90% of equity needed to purchase company.

QUESTIONS:
1. How should this be structured as a legal matter. Should we form a partnership or LLC, where we will define the arrangement between us (equity splits, salary, control issues, etc) and the LLC would be the sole shareholder of the purchased business. OR should be both be parties to the purchase agreement, and simply have a shareholder agreement between us on the side.

2. Based on facts given above, what is a "fair" equity split. As a reminder, PARTNER is fronting 90% of upfront capital; I am contributing the remaining 10% as well as agreeing to work for a small salary while I "learn" the business. I will be in charge of day to day operations and PARTNER is financial partner only. He is located 1000s of miles away.

3. Are there ways to structure arrangement where my equity builds over time, as I gain experience and maybe hit some pre-set milestones?

4. What are the MAJOR other issues that we need to consider now before proceeding.

THANKS A BUNCH to whoever made it this far. Any thought you have to share is appreciated

- George

[huggytree]

I cant help you with any of the legal issues...but I can give you advice on partnerships....they typically fail

I believe people go into partnerships most of the time because they are afraid to go it alone
One partner always works harder and always has envy(why should I work harder than my partner and split the $$)

of the 5 partnerships I work for....4 broke up within the past 2 years....the businesses still exists and I still work for them....but now all 4 are owned by 1 guy and the other partner just went off on his own and started something new......the 1 partnership I still work with is struggling....they are both the easiest going guys....its like a perfect marriage ....I think its a rare thing

I would never recommend any partnership...no 2 people are equal in any way......any divided profit will never seem like enough for 1 side and will seem like too much on the other...Envy,Greed are built into all of us......and laziness can be too

[George22]

HuggyTree, I appreciate your candor and your sharing your previous experiences.

To be clear, this will not be a 50/50 partnership. I know going in that the "financial" partner will have no involvement in the operations. He will be a silent partner. Thus, I am accepting going in that he will be doing 0% of the work, and such will be set forth in the Operating Agreement of the LLC. For that reason, I think it will be less likely that I will resent my partner not working as much as me because I am agreeing that he will do no work. However, I understand that there is always a possibility of resentment in that I end up working much harder than expected. But that is the deal that we will strike and I will have to live with that. Our Operating Agreement will define steps that should occur if one of us wants to exit the business, thus I will always have that to fall back on.

I am still interested in knowing structure we should use. Do we form a corp or LLC for purposes of acquiring the existing business, where the buying LLC will be the sole shareholder and the operating agreement will define the "arrangement" between me and PARTNER? Or is there another method.

Thanks!