Should I give this guy a 50% cut for this?

13 years ago

Woah. What did y'all work out as far as equity shares? Is this an Inc, an S-corp, an LLC?

Really, you should speak to a lawyer. You should have had this worked out in the bylaws and you both should have actual shares of the company stock.

As is fair, it depends on what was invested. If he invested a total of 5k and you a total of 55k, for example, over the life of the business, he only owns roughly 10% of the business and should get 10% of the profit, in theory.

However, there's sweat equity, and for accounting purposes, you shouldn't simply pull out your profits in this manner. You both should have salaries.

Ok, never mind what I said before, you need a lawyer AND an accountant. I'd also suggest having a bookkeeper.

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13 years ago

Originally Posted by CherryPicked

Woah. What did y'all work out as far as equity shares? Is this an Inc, an S-corp, an LLC?

Really, you should speak to a lawyer. You should have had this worked out in the bylaws and you both should have actual shares of the company stock.

As is fair, it depends on what was invested. If he invested a total of 5k and you a total of 55k, for example, over the life of the business, he only owns roughly 10% of the business and should get 10% of the profit, in theory.

However, there's sweat equity, and for accounting purposes, you shouldn't simply pull out your profits in this manner. You both should have salaries.

Ok, never mind what I said before, you need a lawyer AND an accountant. I'd also suggest having a bookkeeper.

Thanks but relax. This is completely hypothetical. NO lawyer needed. Thats why Im asking this stuff NOW and not later (so I wont need a lawyer)

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13 years ago

Originally Posted by TheSalesTechnician

Thanks but relax. This is completely hypothetical. NO lawyer needed. Thats why Im asking this stuff NOW and not later (so I wont need a lawyer)

Nope, still need a lawyer as well as an accountant. I love my friends, one I consider a sister. I trust her with my LIFE. I would still have a lawyer draw up papers, no matter which of us was the one tossing in the 50k.

You're not just protecting yourself from each other, you're protecting yourselves from greedy ex-wives, meddling family members, that person you might rear end one day that wants to sue your pants off...I could go on.
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13 years ago

I agree with CherryPicked. You need to get this ironed out legally because although you may be friends, money does crazy things to people. I'm sure you know how many times businesses have ended up becoming successful, and the founding "friends" don't end up friends. Whatever you agree upon, put it in writing.

And as far as splitting the income...If an outside investor put $10000 in, and another outside investor put $500 in, would you pay one more than the other?

Just realized this is hypothetical, so I guess my answer is hypothetical also

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13 years ago

I would probably suggest about $7500 for you and $2500 for him.

Once he invests $50K into the business you can split 50/50 - Which by logic would be substantially over $10K each.

Do it in writing.

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13 years ago

One idea is you could treat the 50k investment as any other investor would; a percentage of the business. I don't think you would invest in the business in that manner without your partner agreeing to it in the first place, right? If you had an 'outside' investor he would require a percentage of ownership based on the current value of the business.