How to setup business partnership

TheAdvertisingMan · May 28, 2016

Hi guys,
me and friend of mine are about to start a company together. The thing is I don't how to fairly setup the partnership. I've been self-employed for years but have never done any form of joint venture.

He's my friend since childhood and I'd like to split everything 50/50. However, the truth is I'm gonna invest much more money than he will (at this time) and also the business is completely based on my skills. A little dilemma for me.

My idea is to teach him basics of our field (internet marketing) and then let him do the heavy work which is finding clients. He's talkative and can improvise pretty well so I guess it would be good job for him. Although, he won't probably participate on the actual work (SEO, PPC, etc) and we will need few employees sooner or later.

It may seem like a bad partnership for me, but I truly believe my partner could save my a lot of time which will result in faster growth at all.

Thanks for your input!

EpicApps · Jun 16, 2016

Not all equity partnerships are based on the money invested, there is also whats known as sweat equity meaning how much work a partner is doing. Also if he is going to be doing sales just remember that sales are the life blood of any product/service so he's putting in 50% of whats needed, as a small business you should first set a min salary for both of you anything over that amount should go back in to the company later you can payout bonuses if the company is doing well. You don't want to run into an issue where you've taken all the money out of the company and cant grow or add services you need to.

If he's doing sales you can also set a percentage based on milestones or sales production like $X sales amount for the month = X% if he goes over $X sales then the percentage is increased. The same could be done with equity, you can start out basing the equity on the money invested and let him earn up 50% based on sales. There is also nothing wrong with doing a stright 50/50 if you really think he's going to match the money you need to invest with his efforts in sales.

The main thing is since he's a friend you want to keep things very open and let him know how you feel, your worries ect and ask how he feels about it and what he thinks is fair. Money is important but having a life long friend is more important.

CeaseFireBlack · Jun 16, 2016

it depends on the effort and contribution, partners should find something that fits both of them.

TheAdvertisingMan · Jun 19, 2016

EpicApps said:
Not all equity partnerships are based on the money invested, there is also whats known as sweat equity meaning how much work a partner is doing. Also if he is going to be doing sales just remember that sales are the life blood of any product/service so he's putting in 50% of whats needed, as a small business you should first set a min salary for both of you anything over that amount should go back in to the company later you can payout bonuses if the company is doing well. You don't want to run into an issue where you've taken all the money out of the company and cant grow or add services you need to.

If he's doing sales you can also set a percentage based on milestones or sales production like $X sales amount for the month = X% if he goes over $X sales then the percentage is increased. The same could be done with equity, you can start out basing the equity on the money invested and let him earn up 50% based on sales. There is also nothing wrong with doing a stright 50/50 if you really think he's going to match the money you need to invest with his efforts in sales.

The main thing is since he's a friend you want to keep things very open and let him know how you feel, your worries ect and ask how he feels about it and what he thinks is fair. Money is important but having a life long friend is more important.

Thanks for your input. I agree with you on this.

How to setup business partnership

How to split the partnership?

50/50

60/40

70/30

TheAdvertisingMan

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EpicApps

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CeaseFireBlack

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TheAdvertisingMan

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