Good Morning Everyone
To cut a long story short, a friend of mine recently approached me with an offer of partnership in his company (a CC). He approached me primarily because my skillset will prove beneficial to his company. He's been in business (alone) for around three years, and he's never employed anyone.
The vast majority of his work is done for a single client who pays him on a monthly basis. Through my involvement in the company, we hope to expand the customer-base.
The tricky bit comes into play with profit sharing and ownership of the company. Neither of us wants to bamboozle the other and we want our agreement to be fair for both parties. With regards to profit sharing, we've discussed an arrangement whereby whoever brings a contract, automatically gets 20% of the revenue from the contract while the other partner gets 10%. The remaining 70% is allocated based on the hours spent by each partner. Thus, if he brings in a contract and each of us does an equal amount of work, he gets 55% and I get 45%. Based on a discussion with his accountants, it looks like this approach will be viable.
As for ownership, we initially leaned towards 40%/60% in his favour. His accountants, however, advised him to reduce the size of my share to something like 30%, just in case I try to assimilate the company. I've thought about it, and I'm concerned about investing a lot of time and effort in a company which I don't even own a third of. In the long run, if the company does well, I think 30% would be an unfair divide if we both put in equal amounts of time and effort.
One of our other concerns relates to running expenses - how should money be allocated to expenses? Using the 30%/70% example, if one partner owns 30% and the other owns 70% of the company, should 30% of running expenses be paid from one partner's share of revenue and 70% from the other? Since it's an IT company and both of us work from home, we'd like the company to pay our monthly ADSL fees. However, since we're with different ISP's and our monthly ADSL fees differ, it isn't as simple as a 30%/70% split on the total ADSL fees paid by the company.
Apart from what I've mentioned, what else should we think about?