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TexLaw
TexLaw, Attorney
Category: Business Law
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Experience:  Internationational Commercial Attorney
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Hi, Im starting a new business with a partner and would like

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Hi, I'm starting a new business with a partner and would like to get a professional opinion on the share of the company to offer her so I'm confident I made a fair decision. The idea of the company and the product I developed are mine. I planned to start a business on my own in the next year or so. However, when I first met this person she got very interested in this business and offered to go in it together. There is no question about the investment because the funds needed are low and I could easily cover them myself. What she's really bringing into my business is some knowledge about the industry and a personal experience in it. She also appears to be a great sale's person which skills I lack. And, because of this I plan to have her lead Sales and Marketing although I don't know yet the extent of her skills. In addition, she can build a website because she has experience doing so while it'll take me much longer to accomplish if I were to do it myself. So, I'm planning to offer her a third of the company (i.e. 33%). She initially wanted 50/50 but prefers 40%. What is your opinion/experience?
Hi,

Thanks for your question.

Do you plan on also paying her a salary for her work?

If you were to hire a person to do the work that she could do, what do you think you would have to pay the person?

How much revenue do you project to make in the 1st and 5th year of your business?
Customer: replied 3 years ago.

I don't plan to pay her salary. We would divide the profit based on the share of the company and she can decide how much of it is salary vs. distribution.
If I was to hire a sale's person for instance, I would have paid commissions only, no base salary and perhaps some bonus program as a % of profit


 


I haven't yet completed my financial projections analysis but as a rough estimate, revenue of $150,000 (to be very conservative).


 

The fact is that the business idea is yours and yours alone. You are the one starting the business and can do it without her. The true consideration for bringing her on is mostly for labor purposes and for a little bit of experience and skill. However, it is also true that you could simply hire someone based on a commission scale without needing to provide a cut of the overall profits.

As this is the case, a percentage share of 25%-40% would be reasonable. I think you need to be realistic in making sure that she is given enough of a share of profit to form a living wage. I would consider giving her a lower percentage share of the profits along with a small commission. This way, you can make sure that she is incentivized properly.

You should also make sure that you have an operating agreement that she signs with you which gives you the right to buy out her shares at the end of the year (so you can kick her out if you do not like working with her), and perhaps gives her the option to potentially purchase more shares from you if you if she reaches certain milestones. Further, you need to strictly lay out her work requirements in the agreement and tie this to your ability to exercise the option to buy her shares out if she is not performing up to standards.
Customer: replied 3 years ago.

Thank you, XXXXX XXXXX a very helpful advice. I plan to draft an operating agreement but would like a professional opinion in case anything is missed or worded inappropriately. Do you provide services with this, i.e. review the document and provide feedback/language changes?

I'm glad to be of service.

I'd be happy to review your document and provide you with feedback. However, you will need to address this to me in a separate question.

To do this, simply click on my profile and submit the question to me through that portal. Start the question with "For ZDNLaw only."

In regards XXXXX XXXXX question, please signify your acceptance of my answer by rating it positively so that I am compensated by the website for my work with you today.

Thanks,
ZDN
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