Parnterships - workload potential incompatibility
Discussion
Hi All,
A friend who I have worked with over many years set up a new business this year with £3000 and it is set to make about £15,000 gross profit this year after trialling in just one area. The next year it should double this and add territories. Its a great business and potentially I could be a shareholder, starting at 10% (for £10,000) and assuming targets are met, going up to 30% in a couple of years. However my friend is also very busy with another start up and his own digital marketing consultancy. He has work coming out of his ears. What worries me is that I'll work hard with, at best, small salary over the next 2-3 years to build the buisness whilst he manages the PPC and a few finiancials - in all, not much work at all. If I look at it from his end he's got the business running and for the next two years it'll grow with minimal effort from him. Am I being unfair or realistic?
Your thoughts will be much appreciated.
A friend who I have worked with over many years set up a new business this year with £3000 and it is set to make about £15,000 gross profit this year after trialling in just one area. The next year it should double this and add territories. Its a great business and potentially I could be a shareholder, starting at 10% (for £10,000) and assuming targets are met, going up to 30% in a couple of years. However my friend is also very busy with another start up and his own digital marketing consultancy. He has work coming out of his ears. What worries me is that I'll work hard with, at best, small salary over the next 2-3 years to build the buisness whilst he manages the PPC and a few finiancials - in all, not much work at all. If I look at it from his end he's got the business running and for the next two years it'll grow with minimal effort from him. Am I being unfair or realistic?
Your thoughts will be much appreciated.
What about dividends?
If you are a 30% shareholder, you should be entitled to 30% of any dividends issued - as well as any normal salaries paid.
Based on what you are saying, I presume you are talking about being a shareholder in a limited company, rather than a partner in a trading partnership?
If you are a 30% shareholder, you should be entitled to 30% of any dividends issued - as well as any normal salaries paid.
Based on what you are saying, I presume you are talking about being a shareholder in a limited company, rather than a partner in a trading partnership?
Yes, it is a limited company. Next year from what we have done this year, the business will be pretty much full time operationally (managing customers, orders and contrators) and so we cna either emoply someone or I do it. I could do with the additional income and there's no sense I think in paying someone to do what I have time for. At this early stage its difficult to see what dividends could be but target is £40,000 GP next year conceratively.
Edited by Undirection on Tuesday 12th August 10:02
Sorry to ask this as I didnt see if you had already answered the question.
Why do you get a lower % than the partner?
Whats to stop him kicking you out after 2/3 years hard work as main share holder?
It was started with £3000 with a friend, yet you are being offered buy in at £10k per 10%?
Why do you get a lower % than the partner?
Whats to stop him kicking you out after 2/3 years hard work as main share holder?
It was started with £3000 with a friend, yet you are being offered buy in at £10k per 10%?
You need to split the roles of shareholder and employee in your head.
Shareholder: You are buying into a business that has projected near future £40k GP (net GP?) @ £10k for 10% - is this a good investment, only you can decide. Any dividends are from the profit remaining after the cost of any employees.
Employee: If you are going to be an employee lets say on £30k per annum then that compensates you for your time as an employee. Any dividends then compensate you for the risk you took when investing. The 70% of dividends that your co-shareholder gets is his reward for the risk he took in setting it up in the first place not his reward for the day to day work he puts in now. Or as you say you can recruit an employee. Either way the net profit out of which any dividends would be paid is the same.
Or another way of looking at it is, if you split the hours of the 1 full time position available 30/70 then you should split the wages 30/70, so you'll get 30% x £30k = £9k.
Shareholder: You are buying into a business that has projected near future £40k GP (net GP?) @ £10k for 10% - is this a good investment, only you can decide. Any dividends are from the profit remaining after the cost of any employees.
Employee: If you are going to be an employee lets say on £30k per annum then that compensates you for your time as an employee. Any dividends then compensate you for the risk you took when investing. The 70% of dividends that your co-shareholder gets is his reward for the risk he took in setting it up in the first place not his reward for the day to day work he puts in now. Or as you say you can recruit an employee. Either way the net profit out of which any dividends would be paid is the same.
Or another way of looking at it is, if you split the hours of the 1 full time position available 30/70 then you should split the wages 30/70, so you'll get 30% x £30k = £9k.
Du1point8 said:
Sorry to ask this as I didnt see if you had already answered the question.
Why do you get a lower % than the partner?
Whats to stop him kicking you out after 2/3 years hard work as main share holder?
It was started with £3000 with a friend, yet you are being offered buy in at £10k per 10%?
Well tbh I'm not sure. I don't think he wanted to give away much and the investment was really to gain commitment as opposed toan employee who could walk away at any time. I don't beleive he can 'kick me out'. He would have to buy me out.Why do you get a lower % than the partner?
Whats to stop him kicking you out after 2/3 years hard work as main share holder?
It was started with £3000 with a friend, yet you are being offered buy in at £10k per 10%?
Undirection said:
andy-xr said:
And would you take all the risk if it went down in flames?
What risk? There are on premises as such. Products are bought when needed and contractors do the work. There's very litle risk at all.It sounds a bit to me like you're trying to have your cake and eat it
Undirection said:
Yes, that's fine and I accept that. My challenge is that I am unsure about doing 'all the work' to get it to that stage whilst he doesn't do much and at the end of it will still be a 70% shareholder. Am I unreasonable to assume he'll should do 70% of the work to build it?
How much do you value your friendship?If you feel like this now, it will inevitably only go in one direction as the resentment builds momentum.
Undirection said:
Well tbh I'm not sure. I don't think he wanted to give away much and the investment was really to gain commitment as opposed toan employee who could walk away at any time. I don't beleive he can 'kick me out'. He would have to buy me out.
Do you have a shareholders agreement on this sort of thing? If not, get that sorted PDQ!Gassing Station | Business | Top of Page | What's New | My Stuff