I've got someone I've worked with for a few years in other businesses and he has asked about joining me as a partner in my company. I could use the help with local sales, programming, etc.

He's asked how much I would want to let him join the company. I'm pretty much stumped on how to figure this out. Any ideas?

Legal Partnerships are hard to get out of. I wouldnt partner if your already established, i dont see the point. Just employ him....
Just my view.

Unless you trust this guy with your life, form an LLC. If you think the business will grow to the point where you will have a lot of investors or you have dreams of going public, form a Corp. If he runs away with the company credit card for a weekend of hookers and gambling, your personal assets can be at risk in a regular partnership. LLC's and Corp's are basically set up so the only thing you are risking is the money that you have put into the business. If you put up personal assets for loan collateral, those are at risk, but other than that, you are pretty safe. Not a lawyer, but I have had this all explained to me a thousand times.

If I were you, I would search the web and look into how much law firms charge new partners. Obviously you will have to scale it based on how much you make, what the company is worth, etc., but it might give you at least something to start with. Unless I am missing the obvious, that is the most standard place where people "buy in" as partners so there is probably a lot of info on the web.

Giving away control of your company is never a good idea. The legalities are very complex and can open a whole new can of worms to deal with. Perhaps employment and a fixed term profit share would be a better alternative? That way you maintain control and the new guy still has an incentive to work for.

Good suggestions - thanks!

UNLESS you plan on stilling the credit card for a weekend.. LOL, j/king!

Also, you don't know how this guy is going to perform once he's in, or how greedy he might become. These are things nobody can ever tell unless they've been in prior partnerships together. Trust me on this. You don't want to regret it later.

So I think you should just contract him to do stuff for you with a probationary period. Pay him as intern/employee/contractor/whatever for a few months and see how he performs and how well you guys work together.

Also, don't do it because he uses personal friendship to push you. If you really don't need him don't do it.

My opinion is you should be tracking all the time you've put into building your company -- or at the very least, estimating how many weeks you've been at it, and multiplying those hours by a decent wage.

If you've been in business for 6 months (roughly 26 weeks), doing 40 hour weeks and you would have been making $20/hr doing something else, 26 weeks * 40 hours * $20/hr = $20800.

$20,800 would be your break even point for your time invested.

You would generally subtract what you've paid yourself from that figure, and the remainder is your time invested as capital. Determine what % owner he is looking to become, and do the math. Just declaring him a 50% partner for a couple bucks isn't the way to build a successful business.

Look into forming an LLC and read up on Capital Accounts.

Hope that helps!

Note: The above figures are just examples. I know we owners all work more than 40 hour weeks, and all our wages vary.

All things worth thinking about.... thanks for the input guys (and gals ;) )!

I might be too late to offer this, but make sure you have a performance-out clause of some sort. I have a friend who owned a large colo company in Miami, and he took on an energetic, highly interest partner who bought in. Then, the partner did absolutely nothing, and unfortunately, there was no legal way to get rid of the partner. The partner took advantage of my friend's desire for success, and rode him for plenty of money (in the millions).

My advice? Get a corporate lawyer and pay them well. Also, toss it around with friends and family--anyone who you trust. Make them play Devil's Advocate and ask you the tough questions. If you can't prove value of a partner beyond an employee or just putting in another few hundred hours a week yourself ( :) ) then don't do it.

I did a similar analysis over 8 years ago when I started my hosting company, and I'm very glad I didn't take on a partner. Also, as for determining a buy-in amount, I'm a bit surprised you don't have a valuation of your company. You should do a value assessment every 3-6 months just in case, even if you dont think you'll need it.

That should help, but the layer is the most important aspect.

$0.02

BobFarmer, not too late at all! Thanks for the good advice. Believe it or not, my brother is a corporate lawyer! But, since he focuses on discrimination cases, everytime I ask him a "business" question, he only gives me names of referrals!

What the heck do they teach them in law school for 3-4 years anyway???? Anything other than how to increase billable hours???? :eek:

The last time i asked a similar question on here i got a reply a bit like this:
What are his motives? Most probably money, when it comes down to it, you have set up your company and so it's important to you to grow the company and look after it..........what incentive does he have to do this? He isn't the onw who spent time setting it up, dealing with teething problems etc.
If his main incentive is money then it would definitely be safer to employ him.
Partnerships can be dodgy at the best of times but i think that if you are going to get into one it should be when you start your business, and if for some reason you need someone to join at a later date, you MUST be able to trust them with your life.

If you are still going to go ahead with it though, make sure you form an LLC or Ltd company to protect yourself.

Yup don't ever under-estimate your time and risk. Your friend wants in because he sees success. However at the time you started there was a big chance for failure. You took on all of that risk and basically the new potential partner won't. Take that into account.

For me, I'd avoid any partners unless I REALLY REALLY needed one. I've seen so many partnerships go down in flames...

Originally posted by ptww.net
But, since he focuses on discrimination cases, everytime I ask him a "business" question, he only gives me names of referrals!

What the heck do they teach them in law school for 3-4 years anyway???? Anything other than how to increase billable hours???? :eek:

One of the first things lawyers are taught is this: Don't take cases from your friends and relatives.

A lawyer has to be able to give their client advice which the client won't like; if their client is a close friend or a relative, it will be very hard for the lawyer to give that advice. They say that a lawyer who represents himself in court has a fool for a lawyer and a fool for a client -- the same applies, to a lesser extent, to representing relatives and friends.

Incidentally, the same rule applies to doctors.

Originally posted by cperciva


One of the first things lawyers are taught is this: Don't take cases from your friends and relatives.

A lawyer has to be able to give their client advice which the client won't like; if their client is a close friend or a relative, it will be very hard for the lawyer to give that advice. They say that a lawyer who represents himself in court has a fool for a lawyer and a fool for a client -- the same applies, to a lesser extent, to representing relatives and friends.

Incidentally, the same rule applies to doctors.

Also, being that many lawyers are sleazballs that never ever return phone calls no matter how many times you call them, your relative might not want you to see his ugly side.

Originally posted by Skeptical

Also, being that many lawyers are sleazballs that never ever return phone calls no matter how many times you call them, your relative might not want you to see his ugly side.

:emlaugh:

Michael:

Charge 7.5x your current annual gross.