General business question

So here?s the question:

I?m the co-founder of a dev company with 1 other partner, so we have equal shares, we are still in the early stages of our journey but we have a very basic formula to our business model, basically we each take 30% (60% between the two of us) and push 40% towards marketing and other overhead costs.

My partner has started a new job at another software agency and the owner of that agency wants to ?merge? with us, while my partner is working for them. So I need to work out a business model in terms of profit percentages that would be shared among me, my partner, our personal company and the new company that?s basically ?merging? with us.

At the moment the other company will be paying him a salary of xx,xxx and allow him to work on our projects as well to avoid him being distracted with external work. So for example: My company will get a client, the project will then be passed on to my partner who works for the other dev company, then we split the profit either 3 ways, me, my partner, other company or just 50/50 between my company and other company. I?m not too sure how to go about this as the fact that the other company is paying his salary already to work for them so if we merge and any new projects brings in money, why would money go towards my partner if he is already getting paid to work there?

I hope this makes sense?

Basically what you got there is a sweet deal for your partner and a not too sweet deal for you. He gets his salary and 50% of your company (after you give 50% of the earnings to the company you're merging with).

If the company you're merging with does all the marketing and brings the leads it's ok, a problem less for you. If you do close to zero work on the clients you get then it's a sweet deal for you too.

If that's not the case and you have to bring the clients and do a lot of work basically you've turned from business owner to an employee with a stake in the company and I would suggest refusing that deal. But, if that's the only play you've got, accept it, suck it up and find a next cash cow fast.

In business you need to be sharp, trust no one and think ahead of others. Think twice about why anyone said anything to you. Understand what drives the people around you, understand their needs and wants and you can anticipate everything they will do.

Hope this helps.

As mentioned by UrsuAke, it really depends on where the leads comes from.
First of all, you have to define what role will take everyone in the company. I will split the roles in 2 parts: Developing or Bringing leads (or both).
In order to share profits, you also have to define what is the most part important part of the job: in this example, I will consider developing and leads creation at an equal 50%.
You also have to define yourself in the company, opposed as other members role. Will you bring leads? If yes, will you share those leads with your historical partner or just for yourself ?

Once you have everything in mind, then it will be easy to make calculus, but then you'll realize, merging with this company is valuable in only one case:
They bring leads, you develop, your partner develop under YOUR company. Thats to me the only way you'll get profit from this collaboration. IN that case, they would only get paid on a lead-comission type of deal.

Any other deal seems to be a losing type of deal for you.

You should break the partnership with your partner and manage everything yourself,your partner cheating with you if he engage in other job didn't you guys make any legal agreement before starting your business.

UrsuAke said:

In business you need to be sharp, trust no one and think ahead of others. Think twice about why anyone said anything to you. Understand what drives the people around you, understand their needs and wants and you can anticipate everything they will do.

Hope this helps.

Click to expand...

appreciate this valuable input

this looks like a trip to your lawyer is needed here, cake and eat it springs to mind. I'd terminate the partnership and go it alone or get him to buy out my share and get out while the going is good. They could do the dirty and pull the plug at any time and leave you high and dry

Thanks guys, appreciate the input. My partner hasn't breached any contract, he does still have a day job and it was sort of a fluke that he got a job at a dev company. I know this deal can help our business grow if done right, the only problem is, I can't wrap my head around it to formulate a proper solution in terms of profit sharing, but appreciate the advice

If you have equal shares then he can sell of his shares to the other company, you always keep your 50% shares. I would actually try to get him to give you 1% of his shares so you would have 51% shares and still over-rule everyone else.

Never split it up 3 ways from your shares. Let him own 25% and the other company own 25%, that would work too.


Make sure that the other company is actually offering you something beneficial.


Also, the whole situation seems very fishy. There is a clear conflict of interest when it comes to your partner. He will always be inclined to side with the other company now as they are paying him. This could mean if you don't handle it correctly they can push you out completely. He may be a friend but i've seen it happen to the best of friends before.

Sounds messy to me and I think I would refuse the deal or at least I would think of something that would make it 3 times as good for me and give that to them as terms for agreeing the deal - ie you might want to lower their percentage....

In a LLC, you can do special allocations which most people stumble over.

http://smallbusiness.chron.com/risks-special-allocations-partnership-agreements-69955.html

Agree with everyone that this doesn't sound good at all. Why would a company send you leads if your partner works for them? They will just give you the shitty leads and keep the good ones for themselves. I don't see any advantage to you. More like you're getting shit on and persuaded to step into a shitty deal.

Your partner really now has a conflict of interest. I would not sell shares to this company but rather work on a contractual basis or give them a commission for leads. Even so, again they will send you the shitty ones since they do the same thing.