Partnership or go it alone.....
Discussion
Would anyone here recommend going into business with a silent partner investing 50% of outlay for 50% of profits but solely as a silent partner once the business is up and running.
My position is that:
a - Go into business with a silent partner whos a friend of mines father. He will be a silent partner but advantage of having him in is that hes a lawyer as well so is more clued up about a lot of things and hes got more life experience. Other than that all he'll be bringing to the business is cash.
b - Just go it alone. I'm going into business to suceed and not to fail so this outlaws spreading the risk between the two of us. Plus my investor won't bring any knowledge of the actual industry and won't be expecting to work.
c - Write some sort of contract where I own a higher percentage of the business and thus I'm entitled to a larger share of the profits.Can these contracts also let me own the business name, idea and concept if this idea can't be patented. Can I be in a position where if I expand the business using my own money, then he won't be entitled to anything to do with this, but only the profits from the original business hes invested in.
Any thoughts would be useful. I just don't want to backstab my friends dad because hes the one who said he would invest in me when I didn;t have the full financial outlay, but by the end of the summer I'll very likely be in a position where I can go it alone. I'm worried that the consequence of me into business with him will be that he then owns half of the business so any expansion of the business will involve him and any growth in the profits will also involve him. Essentially, I would own and control the business and after this first venture, subsequent expansion will be done by myself, for myself. I don;t want to be stuck in a position where I'm not making as much as I would like yet the business will still require me being there 99% of the time so the only benefit I will have got from going into business with him is half the profits and a cra.ppy wage packet. Any alternative options I can take would be useful too.
Thanx
My position is that:
a - Go into business with a silent partner whos a friend of mines father. He will be a silent partner but advantage of having him in is that hes a lawyer as well so is more clued up about a lot of things and hes got more life experience. Other than that all he'll be bringing to the business is cash.
b - Just go it alone. I'm going into business to suceed and not to fail so this outlaws spreading the risk between the two of us. Plus my investor won't bring any knowledge of the actual industry and won't be expecting to work.
c - Write some sort of contract where I own a higher percentage of the business and thus I'm entitled to a larger share of the profits.Can these contracts also let me own the business name, idea and concept if this idea can't be patented. Can I be in a position where if I expand the business using my own money, then he won't be entitled to anything to do with this, but only the profits from the original business hes invested in.
Any thoughts would be useful. I just don't want to backstab my friends dad because hes the one who said he would invest in me when I didn;t have the full financial outlay, but by the end of the summer I'll very likely be in a position where I can go it alone. I'm worried that the consequence of me into business with him will be that he then owns half of the business so any expansion of the business will involve him and any growth in the profits will also involve him. Essentially, I would own and control the business and after this first venture, subsequent expansion will be done by myself, for myself. I don;t want to be stuck in a position where I'm not making as much as I would like yet the business will still require me being there 99% of the time so the only benefit I will have got from going into business with him is half the profits and a cra.ppy wage packet. Any alternative options I can take would be useful too.
Thanx
Go it alone - the risk of being involved in a partnership and your partner running up debts that you will end up being jointly and severally liable for is not worth it in my book.
If you go the partnership route make sure you understand EXACTLY what the risks are associated with a partnership and your liability for the actions of your partner.
If you go the partnership route make sure you understand EXACTLY what the risks are associated with a partnership and your liability for the actions of your partner.
Eric Mc said:
Although hardly ever done, standard advice is to draw up a legally binding partnership agreement.
Can't advise this strongly enough.
Personally I'd avoid a partnership if at all possible.
Like any relationship there will be difficult times. How many marriages end in divorce? And that's relationships that last long enough to 'progress' to marriage.
I've had a bad experience, and everyone else I know in a partnership regrets it.
Of course there's always exceptions, just make sure theres an agreements drawn up first.
Are you going to incorporate? If so why not make him a minority shareholding director. Then you get the best of both worlds. He's liable for debts too. He gets a share of the business but not as much as you etc.
Other than being involved in board level decisions (which he may want to do as a "silent" partner anyway) he doesn't have to get involved in the day to day business.
Other than being involved in board level decisions (which he may want to do as a "silent" partner anyway) he doesn't have to get involved in the day to day business.
Lets just say randomly for no reason I'm using him to front 3/4's of the money but in cash terms it is a 50/50 affair between us, would you recommend I go into partnership this way. 
Also, I'm going into business to suceed, not to fail. I have utter faith in my business and the closest to failure which I'm even anticipating is for profits to not be as high as I am expecting. Am I going about busines the wrong way in thinking this.
Next, if you were in my business partners shoes, what would you think if I offered you these new propositions such as legally binding partnership agreements or even a buy back option in maybe a few years. I do think that it would be much more beneficial for myself to go it alone but I feel I am backstabbing someone who a year ago had enough faith in me to invest in me. What are buy back options typically worth of the initial investment.(If it was agreed for 3 years on, would 50% plus his investment be a normal figure or quite high. He will of course enjoy profits in the years of operation and then get a lump sum of his investment plus more which is higher than any bank will pay him).
I plan on running a few mini operations from the business I plan on opening which may have the potential to grow quite big. Will the fact that my investor owns 50% of the business also mean that he is entitled to these profits too. My biggest fear is that if I went 50/50 in with him, he would own 50% of the company, the brand etc etc so if I opened extra outlets for the business, I would need to invite him in and he would again make 50% of the profits, thereby holding my earning potential back. By him investing 50% in with me, would he be entitled to only 50% of the profits of this business or is it actually buying into the whole business, the name, the brand and the concept.
Anyway, I would like to thank you for your advice. Being 20 doen't endow me with the knowledge, experience and expertise of you wise lot.
Also, I'm going into business to suceed, not to fail. I have utter faith in my business and the closest to failure which I'm even anticipating is for profits to not be as high as I am expecting. Am I going about busines the wrong way in thinking this.
Next, if you were in my business partners shoes, what would you think if I offered you these new propositions such as legally binding partnership agreements or even a buy back option in maybe a few years. I do think that it would be much more beneficial for myself to go it alone but I feel I am backstabbing someone who a year ago had enough faith in me to invest in me. What are buy back options typically worth of the initial investment.(If it was agreed for 3 years on, would 50% plus his investment be a normal figure or quite high. He will of course enjoy profits in the years of operation and then get a lump sum of his investment plus more which is higher than any bank will pay him).
I plan on running a few mini operations from the business I plan on opening which may have the potential to grow quite big. Will the fact that my investor owns 50% of the business also mean that he is entitled to these profits too. My biggest fear is that if I went 50/50 in with him, he would own 50% of the company, the brand etc etc so if I opened extra outlets for the business, I would need to invite him in and he would again make 50% of the profits, thereby holding my earning potential back. By him investing 50% in with me, would he be entitled to only 50% of the profits of this business or is it actually buying into the whole business, the name, the brand and the concept.
Anyway, I would like to thank you for your advice. Being 20 doen't endow me with the knowledge, experience and expertise of you wise lot.
You need to sort out a proper agreement so you both know EXACTLY what the terms and conditions of his investment actually are.
You are still not making clear whether you want to run your business as a "partnership" (which has its own legal meaning) or a limited company.
For the size and scope of the business you seem to be envisaging, I would suggest that a limited company with a definite share structure be set up. With shares, different types of shares with different dividend entitlements and different voting rights can be put in place to satisfy different shareholder's requirements.
To do all this, you would need to talk to a solicitor who specialises in company law.
You are still not making clear whether you want to run your business as a "partnership" (which has its own legal meaning) or a limited company.
For the size and scope of the business you seem to be envisaging, I would suggest that a limited company with a definite share structure be set up. With shares, different types of shares with different dividend entitlements and different voting rights can be put in place to satisfy different shareholder's requirements.
To do all this, you would need to talk to a solicitor who specialises in company law.
If there is anyway you can do it on your own, even if that means waiting longer for the business to establish itself, then that is what I would recommend.
If there is no way you can do it on your own, then as others have said, get (and pay for) some proper advice, and then put things in writing between you, perhaps with an exit plan for your partner to recoup his investment in future years and leave you as sole owner once the business can avoid this.
But, only if you really can not do it on your own - which is definately better. Haven't noticed Richard Branson, Alan Sugar et al getting there with their partners!
If there is no way you can do it on your own, then as others have said, get (and pay for) some proper advice, and then put things in writing between you, perhaps with an exit plan for your partner to recoup his investment in future years and leave you as sole owner once the business can avoid this.
But, only if you really can not do it on your own - which is definately better. Haven't noticed Richard Branson, Alan Sugar et al getting there with their partners!
By partnership, I mean he would be a silent partner in the business. All he is doing is investing 50% and I would be investing the other 50%. Then on top of that I would get a wage. The business is a catering business and as he has no first hand experience of the industry I will be left to run it. How do silent partnerships work and how much should my wage be worth considering this will probably turn out to be a 24/7 job and be extremely stressful.
Also does anyone think I'd be rude and dishonest if I was to tell him I wanted to go it alone after he has believed in me and supported me for so long. To be honest I really don't think I will end up going it alone. Which ever way he's a really good guy, my best friends dad, and hes a very very WISE bloke and speaks some serious logic. Plus hes helped me out a lot in the past. What I don't want is to be greedy and just make him an offer hes going to refuse and then lose total trust or belief in me to the point that he we have a falling out.
Thanx again everybody.
Also does anyone think I'd be rude and dishonest if I was to tell him I wanted to go it alone after he has believed in me and supported me for so long. To be honest I really don't think I will end up going it alone. Which ever way he's a really good guy, my best friends dad, and hes a very very WISE bloke and speaks some serious logic. Plus hes helped me out a lot in the past. What I don't want is to be greedy and just make him an offer hes going to refuse and then lose total trust or belief in me to the point that he we have a falling out.
Thanx again everybody.
Do it through a limited company with a formal shareholders' agreement so that you and he know EXACTLY what his entitlements are - both in regards to his say in how the business is run (control) and how much he should expect as financial reward (return on investment).
My experience is that "silent" partners start becoming extremely "unsilent" when they see their money going down the swanee.
My experience is that "silent" partners start becoming extremely "unsilent" when they see their money going down the swanee.
Eric Mc said:
Do it through a limited company with a formal shareholders' agreement so that you and he know EXACTLY what his entitlements are - both in regards to his say in how the business is run (control) and how much he should expect as financial reward (return on investment).
My experience is that "silent" partners start becoming extremely "unsilent" when they see their money going down the swanee.
Wasn't that what I said?
Oh my god maybe I do know what I'm doing after all! Good luck with it all. Best thing I've ever done was set up on my own.
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