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This question is for Lane JD. I had a friend who asked me to

This question is for Lane...
This question is for Lane JD.
I had a friend who asked me to find some qualified employees for his sales organization, and was willing to pay a percentage of sale to the employee and a finders fee to myself. This is a new start up. I have worked with this person on an earlier corporation which is very solvent and successful. The guys is a good businessman and an honest person. He need a phone salesman. Perhaps more jobs soon. I instead offered to set up a a sales office for him for 30% commission to me,and I would pay the salesman. I was in the process of setting up my own small office in South Africa (SA), hiring a receptionist to take my phone calls, book my appointments and so on. I have a number of SA friends. I found one who wanted to work for me and has a proven phone sales record, and whom I could profitably pay out of my commission. The owner is fine on paying me on this basis, and me paying my employee. There will probably be 3-4 employees I eventually hire to handle phone sales and service for this US company from my SA Office. He is interested in having me as a part owner in the new start up, and I would probably wind up 30% owner. He has a viable idea. And would be happy to have me run the sales for the company, which is most of the work anyway; It looks viable to me. I am curious if there are any major pitfalls I need to be alert for, any legal complications with having an overseas phone and support office. I do not think he would try to bypass me and run the office direct once established and cut me out. But I am curious as to best way to protect myself. Also, does a simple written agreement between us suffice that he agrees to pay me so and so and I agree to do such and such. Or does it require a much more formal contract. Once it is running and he agrees to it. can he simply give me 30% stock in the corporation? And we agree any pay and dividends would be paid in that ratio. Or do I need to be far more formal in my legal requirements. This could be very profitable, but I am trying to avoid a heavy legal expense in advance.
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Answered in 20 minutes by:
11/21/2016
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,854
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified

Lots to discuss here Dave ..

...

You have issues of entity type, foreign ownership?, setting up operating agreements, partnership agreements or shareholder agreements with bylaws if you use a corporate entity.

...

My first reaction is that if the person is a US person, I'd use the LLC entity , so that you can write a straightforward operating agreement to pre-empt misunderstandings, set up the profit and loss sharing, ownership %, define rights and responsibilities, and simply pay the call center agents in SA as contractors ... although with non-US persons if none of the service is provided from US soil, you don't even need 1099's.

...

Just get a W8 to document they are foreign nationals and at the same time get a statement that none of the work is done in the US, and simply keep good expense records.

...

That's a starting place

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Customer reply replied 12 months ago
Wow. You went right over my head. Yes, we are both in the US. Sounds like no prob paying our SA contractors.If I simply write out an agreement he pays me 30% of income generated/collected from SA sales unit I establish, and from this commission I pay all expenses for the SA operation, and that this conitnues as long as S African office is operatin, does this give me some protection?If later he wants to formalize it that I am a 30% owner of the company--say LLC-- then we need to get if done as you describe above.
Or am I missing something?

OK you either need to be a contractor OR you guys are in a partnership or something more formal.

...

If no ownership is given then the agreement you're talking about is essentially your contract.

....

You'll have duties under it - collecting and paying out a certain amount (reported as income and expense on your schedule C) and so will he.

...

What's income to you and what's income to him depends on how you write it up

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Customer reply replied 12 months ago
Included a copy of the proposed agreement sent me, with identifying data removed. I am X and the Owner who is my friend is Y. My main concern is no compete I an a partner in marketing company, and while I do not have anything competing with current services of Y company, I could wind up selling marketing or consulting to some of this clientelle. I have put "service" in the agreement below wherein owner had put his more explicit service. I do not like phraseology "could" in " i. X will never offer service on ..., marketing, or related topics to colleges which could compete with existing Y programs outside of this agreement whether active or not". The agreement below is for info as you wish, but you do not need to read the whole thing if you do not want to. I I am not sure if quoted line above could prevent me forever from selling to the colleges, and I might want to. I have no intention of selling a take-off of his product, but wonder how if clause above is legally I do sell a marketing product and he considers it is competitive if and after we ever have a falling out? I trust the arbitration/mediation group named. Am I locked in to never competing by his standard?
Joint Venture Agreement
for Revenue Sharing & Commissions
This agreement between X (me) and Y( current owner/friend) shall be bound according to these terms;
1) Revenue sharing on sales generated by X or his team.
a. Commission of 30% of all revenues from the closed sales of our service
i. Must be sold for a minimum $2,500 for commission eligibility, any discounts must be approved by Y
and the commission amounts agreed upon in writing
ii. Minimum pricing of service:
1. Commission of 50% on all revenue above $2,500 for service
c. Future commissions on yet-unreleased products and services shall be determined at the time of their release and
added as an addendum to this agreement, but shall not drop below 25%.
i. X is not obligated to sell any future products or services that Y releases
2) Ownership rights
a. Y shall maintain all ownership rights to it’s respective intellectual property
i. All intellectual property developed by Y is solely owned by Y and has been licensed to
Y LLC on an unlimited basis for an annual fee of $25,000. This is paid at the LLC
level.
3) Exclusivity
a. Y may sell any product or service outside of it’s agreement herein, with the exception of service
without permission from X or compensation to X, so long as this agreement is in full-effect.
b. X shall be the sole performance-based sales team (call center) for Y so long as the minimum average monthly
sales targets are met and maintained per below
4) Minimum Performance
a. X shall lose it’s exclusive right to represent Y for outside sales performed by independent contractors on a
commission basis (by non-Y employees) if X and his team are unable to generate $300,000 in revenue in the
first 9 months, or if average monthly revenues fall to $20k for any three month period after the 9th month.
5) Competition
a. X and Y promise to not compete with one another directly throughout the term of this agreement or for a
period of 6 months after the termination of this agreement.
i. X will never offer service on admissions, marketing, or related topics to collleges which
could compete with existing Y programs outside of this agreement whether active or not
ii. Y will not develop it’s own outside commission-based sales call center outside of this arrangement
with X
iii.Y shall be allowed to hire salespeople internally in the United States if they are fully
salaried w-2 employees, but may not hire independent contractors for sales while this agreement is in
effect. Independent contracted sales people fall under the X management and commission structure.
6) Option to purchase
a. X shall be allowed to purchase a 33% ownership interest in Y LLC from Y for $100.00 (one
hundred dollars) provided that DH;
i. Generates an average minimum sales volume of
1. $40,000 per month for any 3-month period in the first 12 months
2. $50,000 per month for any 3-month period in the next 12 months
3. $60,000 per month for any 3-month period in the following 12 months
ii. Folds all call center costs, revenues, and profits into Y Lat the time of the acquisition of ownership
interest.
1. Upon the merger of the call center and Y, a new operating agreement for the company shall
be written which will lay out the roles and responsibilities of X and Y with respect to
such a combination of forces. SE will remain as CEO with full executive authority in any such
negotiated operating agreement.
7) Cancellation
a. In the event this joint venture is not mutually advantageous, either party may cancel it with 60 days with written
notice to the other party and copy sent to named arbitration committee which we both trust.
8) Arbitration
a. Any and all disputes or problems shall be performed by binding mediation through the named arbitration committee
Customer reply replied 12 months ago
P.S. I realize this is a long question. And if you answer if, I would expect to send you a decent tip. And I understand you are not giving legal advice, but only educating me. If you see anything else in the agreement that is dangerous to me or you want to comment on, that would of course be worthy of more tip.

OK you'll have to give me a little time on this.

...

Don't reply right away unless you have something to add... It's iull just force me to come back and respond.

...

Again, a little time here

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Customer reply replied 11 months ago
Good Morning Sir,
I keep getting nudged by Just Answer to rate you , but believe you are still working on my question. You asked for a little time.. It was been a few days, I think, and this includes Thanksgiving. But since I am being nudged daily, I thought I would double check with you on my excessively long question. Mainly checking to see if you answered it and I did not get answer, and if not, when you expect to answer my question. Thanks again for your help.

So sorry, yes ... I'm out and about today, had family obligations yesterday ... maybe I can have you something by this evening.

...

Generally, you are (locked into the non-compete).

...

What I would do is ask him to strike those provisions (based on what you've said, that you do want to do something that could be perceived as competing in terms of THIS agreement) ... OR

...

ask him to take away the mediation clause and either let you have legal recourse (courts have been very liberal in this area, about the interpretation of competing) or softer approach to this would be to say that you want to use a mediator that you BOTH agree on, if needed.

...

I'll try to give you a little more on this, this evening.

...

(sorry for the typos... trying to answer on th iPhone)

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Customer reply replied 11 months ago
OK. This is good so far. Now, I have an acceptable to me mediator hat we both agree to.The mediator does not have authority to arbitrate, so if I do not agree then I cannot be effectively fined or anything. It is simply a matter of trying to be fair.I believe no-competes are generally un-enforceable. As I understand it, it IS enforceable that I not go after his clients. I cannot take his files or call the people I met through his business using the numbers I have from his business. I have no desire to take what he is giving me and make a business competing with his. And I certainly would not call up his clients and pitch them to switch to my product. Of course, maybe if he decided to end the relationship and I had people working for me who would be out of a job, maybe I would want the option of continuing to sell a similar product to colleges. This is very unlikely, but the whole idea of the business agreement review is to be ready in case of divorce.The one phrase that concerns me is:
. X will never offer service on admissions, marketing, or related topics to colleges which
could compete with existing Y programs outside of this agreement whether active or notIs this line pretty much legally unenforceable?

What state? (Contract law is state law)

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OK, You may find this helpful.http://www.beckreedriden.com/httpwww-beckreedriden-comwp-contentuploads201508noncompetes-50-state-survey-chart-20150823/

...

If you don’t have more questions on this, … I would appreciate a positive rating (using the stars or faces on your screen, and then clicking “submit")

Otherwise I won’t be compensated for the work here.

Thank you!

Lane

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Customer reply replied 11 months ago
OK. I checked out the State of Tennessee. I could not fully understand the legalese there. I read over the Tn section of download. Not sure what it said. My earlier belief was you cannot really enforce a non-compete on an employee or contractor. I am not talking about using client data. If I was selling a subscription to a legal /business consulting service as a sub-contractor or w2 Employee or shareholder paid off dividends, and my relationship was severed, whether I quit or was fired or whatever, I do not believe I can be prevented from working for another company or forming my own company to sell a consulting service. I cannot call all my old customers back from prior firm. I cannot copy trademarks, mimic his logo etc. I was told non-compete were largely unenforcable in tax arena. I assumed other as well. Suppose I set up appointments for salesman for X vacuum cleaner or Y consulting firm. Is there any way I can be prohibited from doing a similar activity for different firms, say A Vacuum Clear or Z consulting firm. My action of calling prospect may be similar. I may use similar techniques to make an appointment. I am not talking about calling my former clientelle and telling them that I now work for a different and bette rfirm, and ... Can you tell me if i am essentially right or wrong or??? I did not follow the point of the downloaded link.

Using the same techniques is not relevant.

...

Calling the client that were already clients of the other individual is a problem

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Customer reply replied 11 months ago
Very good. Thank you very much.

As Always, you're very welcome Dave.

...

Your positive rating … (by using those the stars or faces on your screen, and then clicking “submit”) …is thanks enough.

Otherwise I receive no compensation for the work here.

...

Thank you!

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,854
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified
Lane and 87 other Tax Specialists are ready to help you
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Thanks Dave

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Lane
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,854
12,854 Satisfied Customers
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986

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