9 {{ upvoteCount | shortNum }}
9 {{ upvoteCount | shortNum }}

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

by TheSalesTechnician
7 replies
Hypothetical scenario

Friend an I start a small business.

The business is making 1k/month. We split everything 50/50

NOW...

I decide to invest 50k of MY money (that I made from a separate business venture not connected with him)...Into this business..

So...because of my investment, our new biz just went from 1k/month to 10k/month

Does he still get 50%?

I invested the 50k...not him.

And if not, How should I structure this?
#50% #cut #give #guy
  • Profile picture of the author 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.
    Signature
    Visit my PLR store! New article packs added daily and I love requests!

    12 Days of Christmas - 12 days of unique PLR gifts just for my subscribers!

    Banners and WordPress Header PLR
    {{ DiscussionBoard.errors[5166010].message }}
    • Profile picture of the author TheSalesTechnician
      Originally Posted by CherryPicked View Post

      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)
      Signature

      {{ DiscussionBoard.errors[5166016].message }}
  • Profile picture of the author officer_iron
    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
    Signature

    {{ DiscussionBoard.errors[5166017].message }}
  • Profile picture of the author dadamson
    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.
    Signature
    {{ DiscussionBoard.errors[5166032].message }}
  • Profile picture of the author Allen Crawley
    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.
    Signature
    {{ DiscussionBoard.errors[5166037].message }}
  • Profile picture of the author nickdamodda
    How much did he invest ?
    {{ DiscussionBoard.errors[5166040].message }}

Trending Topics