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what does it mean when I'm offered 49% ownership

by nicholasb
23 replies
I was just offered 49% ownership in a new type of social networking site.

Why 49%

and how can I protect myself in the future, when the site sell for millions of dollars?
#49% #offered #ownership
  • Profile picture of the author Neil Morgan
    Well, in a nutshell, the 49 means that someone else has 51% which means they make all the decisions.

    Cheers,

    Neil
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  • Profile picture of the author Richard A.Cox
    Originally Posted by nicholasb View Post

    I was just offered 49% ownership in a new type of social networking site.

    Why 49%

    and how can I protect myself in the future, when the site sell for millions of dollars?


    Offered for what? Free?

    Is it an existing site or one being developed?

    49% of nothing is still nothing
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    • Profile picture of the author Lance K
      If you own 49%, you own nothing!

      Assuming all ownership units hold equal voting rights. Think about it. They want your capital, but not your input. Basically a loan without collateral.

      Why 49%? Because they can extract the maximum amount of money from you and still not give up any control.

      Not saying it's always a bad thing. You just gotta know what you're getting into and with whom. You had better know that business plan inside and out.
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      • Profile picture of the author schabotte
        If I were putting the cash into a new venture (if this is the case), I'd want more than 50%.

        If it was an ongoing venture that was generating revenue but looking for capital to expand, I'd accept less but would need a good contract - and I would have to feel confident in the people and the business plan.
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    • Profile picture of the author nicholasb
      Originally Posted by Richard A.Cox View Post

      Offered for what? Free?

      Is it an existing site or one being developed?

      49% of nothing is still nothing
      The site is already developed with traffic, I done some marketing for him in the past, and he was very satisfied with the results, so that is why I was offered the partnership, nothing is free. I will also have to drive traffic to the site.
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  • Profile picture of the author R Hagel
    Originally Posted by nicholasb View Post

    and how can I protect myself in the future, when the site sell for millions of dollars?
    Get a good lawyer to write a good contract. Or if there's already a contract drawn up, then get a good lawyer to review it.

    cheers,
    Becky
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  • Profile picture of the author Chris Lockwood
    I'll take the 49% if you don't want it.
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  • Profile picture of the author nicholasb
    Alright I will give him a call, now I have a good Idea of what questions I should ask.

    I already have a very good lawyer, so we will see what type of contract he has to offer.
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  • Profile picture of the author Charann Miller
    You are the minority shareholder, they have all the control. Can you bump it up to 50%?, a more comfortable number in my opinion.
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  • Profile picture of the author nicholasb
    what happens when the website sells, how much profit am I entitled.
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    • Profile picture of the author Kay King
      That's a question for your prospective partner. In theory, if you own 49% of a business you collect 49% of the profit and 49% of a sale. The conditions you agree on determine whether that 49% is net after expenses or if you share gross profit and pay some expenses.

      The 49-51 split is common as it gives a controlling interest to one partner. As he developed this site, I can see why he would retain a controlling interest. 50-50 means you both have to agree on everything - and that isn't always possible and can lead to more problems than that 1% is worth. A partnership doesn't always have to be equal to be profitable.

      To protect yourself - don't take anything on "my word" but have every detail and contingency of the partnership in writing, signed and sealed.

      kay
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    • Profile picture of the author Pete Egeler
      Originally Posted by nicholasb View Post

      what happens when the website sells, how much profit am I entitled.
      Maybe you need to reconsider!

      This is REALLY a very basic question, and not one you should have to be asking.

      If he sells it for $1, you get 49¢.

      If he sells it for $1-million, you're entitled to $490-thousand.

      Or, to put it another way, you're entitled to 49% of the sales price (probably after fees, if any.)

      Pete
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      The special sale is over. No longer able to remain acitive. Domain is for sale if interested.
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      • Profile picture of the author angela99
        I'd be very wary of this.

        You're driving traffic to the site (marketing), essentially for free. (49 per cent of nothing is nothing.)

        How much is your time worth per hour? How many hours will you spend marketing this site?

        The kinds of investment/ asset deals were very popular scams in the tech wreck fiasco in 2000/ 2001.

        So... what's your time worth?

        If I were offered this kind of deal, I'd add the sender to my email blacklist, but if you intend going ahead, go and see both your lawyer and accountant and get some good advice -- and an enforceable contract.

        Your time's worth money.

        Cheers

        Angela
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      • Profile picture of the author Jared Alberghini
        Originally Posted by Pete Egeler View Post

        Maybe you need to reconsider!

        This is REALLY a very basic question, and not one you should have to be asking.

        If he sells it for $1, you get 49¢.

        If he sells it for $1-million, you're entitled to $490-thousand.

        Or, to put it another way, you're entitled to 49% of the sales price (probably after fees, if any.)

        Pete
        That's not quite how it works... trust me I owned plenty of stocks & slightly less than 50% in a few dot com's back in the day, when one of the businesses sold, I was voted out by the other three members, and was left with nothing...

        Be careful... if you don't have the controlling share of a company, the ones that do can do whatever they like.

        - Jared
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  • Profile picture of the author Jim Pearson
    Remember when you go into business with someone you are not just getting the option for 49% of the profits but also 49% of the liabilities.

    How is your contract structured...You are now responsible for 49% of the company's expenses, unless your contract says otherwise.

    Also if there are debts that your partner does not pay...you will have to pay them if he does not or is unable to financially.

    Go to you lawyer and write a contract for a independent contractors agreement that spells out whit you will do but does not give you any ownership of the business, just a % of the revenue for your services. Lower the percentage fro say 49% to 25%. You take less money but you protect yourself from long term liability concerns.

    I hoped this was helpful.
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    • Profile picture of the author Careygee
      Originally Posted by Jim Pearson View Post

      Remember when you go into business with someone you are not just getting the option for 49% of the profits but also 49% of the liabilities.

      How is your contract structured...You are now responsible for 49% of the company's expenses, unless your contract says otherwise.

      Also if there are debts that your partner does not pay...you will have to pay them if he does not or is unable to financially.

      Go to you lawyer and write a contract for a independent contractors agreement that spells out whit you will do but does not give you any ownership of the business, just a % of the revenue for your services. Lower the percentage fro say 49% to 25%. You take less money but you protect yourself from long term liability concerns.

      I hoped this was helpful.
      Jim has a very valid point.

      Look up "Partner Law"

      Just to give you an example (Happened) to a friend of mine.

      They went into a Hardware and Lumber Store.
      1. My friend was introduced as a partner.
      2. My friend did not purchase that day, althought the partner did.
      3. The partner sent my friend in a week or two later for a
      small purchase on the account.
      4. The partner was using the account for other business ventures
      and my friend was not aware of the other business ventures.
      5. The partner went bankrupt about 8 months later.
      6. Guess who was stuck with all of the bills and had to also file?

      Partners do not have to have paperwork ... They are partners if
      they represent themselves as partners to any entity.
      Whether it is 90/10 or 50/50 ... it does not matter to the courts.

      Be careful and do not partner ... Independent Contractor
      is best for what you are wanting to do with this person.
      By doing this you don/t have to worry about debts and etc.
      Carey
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      • Profile picture of the author Kay King
        I do not agree with a blunt "do not partner" - there are many successful partnerships online and offline. Managed risk is part of doing business. The key is knowing your partner, knowing how he does business, etc.

        It's true you are also taking on some liability - because you are taking on ownership. However, before creating an Independent Contractor agreement (which basically means he is hiring you to work for him) you should see if he has any interest in doing that. Does the partnership involve you investing money in it? If so, he won't want an IC.

        Should the business turn into a very profitable venture you would have no ownership - should it be sold, you would not profit from that sale.
        Everyone who starts a business faces potential liabilities but they identify what problems might occur and try to prevent them.

        Above all, assess the potential of this business. Social sites are springing up all over - but not all will succeed. Is this a full business with plans for expansion - or is he asking you to partner on one website? Has he formed a corporation or LLC?

        Lots to consider but just ask all the questions, get all the info, and make an informed decision based on what you think is best for you.

        kay
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  • Profile picture of the author jazzyjeff
    Nicholas,

    You can try to get that 1% from your partner by putting in clauses on your contract.

    For example, you already know that you are good at marketing. Your partner is probably bad at that but brings something else to the table. Well, you can ask for the raise to 50% if you meet a certain traffic goal by a certain amount of time.

    Just an idea to see if you can pry that 1% from your partner. Incentive laden contract.

    Jeff
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  • Profile picture of the author 2bwealthy
    Have a solid contract from day one... no knudge knudge wink wink deals.
    None of that "we will work this out later" etc.

    Have a shot gun clause in there. ie if your partner wants to get rid of you , what are his/her obligations to you ( works the otherway around as well).

    If your partners stake is not in his own name ( ie a different company entity) then you could be liable for that company in a round about way. ie actions taken by that company could have negative impact on the company you are partnered in.

    Basically - have a really good lawyer that specializes in these deals. Will cost you up front but save you from future potential issues.

    I think of it this way... when you get married you are not really thinking divorce, but crap if it happens you don't want he/she gets everything.
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  • Profile picture of the author DussaultPR
    One thing for sure! Make sure you include buyout terms in whatever contract you both decide to come up with.

    Example:
    Lets say the site becomes successful ($20,000 a month in net revenue). At that stage the business will be worth approximately $350,000. Now for whatever reason you need to move on, and your partner which owns 51% of the business doesn't want to sell! How will you get your 49% equity out of the business?

    Unless your new partner has a lot of free cash available, he will be hard pressed to come up with $171,500 to buy you out without selling the website.

    Banks will not lend it to him, especially in these tight credit markets, so you need to come up with an agreeable plan, which there are many.

    Smile thou, because that would be a good problem to have ;-)

    Good luck
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    • Profile picture of the author Lance K
      I might have missed something, but are we talking about a partnership?

      If so, it's beyond me as to why anyone would consider owning a non-controlling interest in an entity without limited liability.

      Make sure you know exactly what you're getting into before you agree to anything.
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      • Profile picture of the author Kay King
        But the question is - why would an originator of a product/site/membership not be entitled to controlling percentage - we're talking 2% here. The question is not "how can you get that last 1%" - but whether he knows the person well enough to work with him and whether it's something he's interesting in working on.

        The kinds of investment/ asset deals were very popular scams in the tech wreck fiasco in 2000/ 2001.
        There is no mention of investing loads of money here - they have worked together before - and this is a startup social site, so I don't where scam applies to this. The OP mentions "not free" but never says he is investing cash into this. The other person has already developed the site itself.

        I see numbers being thrown out and they have no relation to reality. The site may make a few bucks, may be solid producer of a respectable amount or might take off and become valuable. There is no way to know.

        Could simply be that with a new site the owner thought offering a partnership in exchange for marketing ability was a way to arrange marketing for the site without having to hire and pay IC's or outsourcing.

        Too many conclusions and speculation. I fully agree that limited liability is something to discuss - and an arrangement for partner buyout in case one wants to leave the business. Should also be a survivor clause in case one partner dies or is incapacitated.

        People partner on a lot of things - and in spite of comments a 49% offer - especially if there is little or no financial investment - could be a sweet deal IF (and only if) the site is successful. Partnerships are not always 50-50 deals.

        Does the OP have time to do this - is he interested in working on this? How much of his time will it take and can he afford to work toward profit in the beginning when profit isn't there? Those are practical considerations.

        Might be better to focus on what the best and worst scenarios might be in the next 12-24 months rather than assuming a huge sale somewhere in the future. The problem with projecting numbers that have no basis is that it can become "real" in your mind and you start believing in those numbers instead of looking at the project...as it really is....today.

        kay
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        Life has no remote...
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