How should I divide my company to protect me?

[Jester00]

Hello all,

I have an online forum website which I run and I am taking on 2 new business partners.

I am going to give each of us an equal percentage of ownership.

I am taking these partners on who are not paying for a percentage as I want them for their expertise.

I want to protect myself however, I don't want them to come on board and then do nothing, during which time I make the website a success which they are entitled to a third of.

Anyone got any suggestions how I could protect myself? I want to add a criteria to the contract that if they are not involved (if) the forum is a success then I have the right to buy back their shares for 1p.

My problem is that I do not know how to quantify their involvement. I mean who is to say that posting 2 messages a month does not constitute 'involvement'. It's also not that easy as I will be requiring them to undertake many, as yet unforseen roles.

Anyone got any creative suggestions?

Thanks

[Jester00]

Anyone able to help?

[KM-Tiger]

Read all the threads - mainly in Legal - about just how wrong business partnerships can go if they are not thought out and set up properly at the beginning.

Somehow you've got to define everyone's role, so you have something to measure against. You've already agreed the split, so no need to quantify.

Then involve your professional advisers, accountant and solicitor, and draw up agreements. Vital the agreements cover what happens if anyone wants to leave, doesn't perform, dies, etc, etc.

That will cost money in fees, but it will be cheap compared to sorting the mess later.

[Jester00]

Thanks KM-tiger, I agree. The problem I have is quantifying their involvement.

I need to have a think about it.

[John09]

What i would of thought you should of done at the start is to of added that into a contract. However, if you bought the forum yourself and it's in YOUR name, then why not have a chat with them. Mainly saying that you would like some help around the site, and for them to basically "Pull their weight".

[Michelle Bray]

You need a service agreement for each of you and particularly for the 2 new people. You will also need a share-holders agreement.

Within each service agreement you detail key roles/responsibilities and set revenue targets/profits they must make in order to benefit from a share in the business. You allocate say 30% share-holding based on a share-options scheme ie if you sell the business and they have achieved the goals set down in the share-holder agreement, they buy the shares at the nominal value (or market value at the time the contract was agreed) prior to completion of the sale against which they benefit from the increased value of the shares at the point they are sold to the new owner ie they buy each share for a £1 just before the sale of the company and sell for £2 or whatever the agreed takeover price per share is.

You can also tier the share options scheme based on yearly performance and/or outstanding performance.

Why are you giving away so much equity in your business ?
regards Michelle

[DaveSimon]

I'd suggest giving them a percentage of income rather than a share of ownership -
a. to motivate them to help in income generation
b. to avoid the problem of lazy owners you have identified

Put the problem to them and renegotiate?

All the best, Dave Simon

[DirCosec]

Interesting situation.

1) Can you pay these partners a salary instead with a bonus system?

2) Giving away shares for expertise may not be the best way to go. It will be better to define targets and then agree percentage shares on hitting their targets. Do not however give away more than 49%. As the founder owner you should aim to keep 51% at all times

dircosec.com

[-NKT-]

I'd not touch this with a bargepole.

Unless they are some kind of gurus who are the entire rare skillsets you are looking for, and you are simply the management, with them doing the technical stuff, then why them, and not someone with (say) 5 years experience of doing the job for someone else?

I'd certainly not allow anyone a large percentage of shares, let alone partnership status!

Or are you planning to sign them up, empty the bank account and disappear? This leaves them fully liable for your debts, as long as you remain out of reach. Once they are asset stripped, you can come back, settle with your remaining debtors for a few pence on the pound, and carry on.
Put that way around, would you let them have that sort of control? Thought not.

Partnerships are a very dangerous thing. SLAs mean nothing, contracts between you mean nothing. Stay as a one-man-band and hire the experts you need.

I'm not alone in this. Read 'How to get Rich' and you'll see that Mr. Dennis Publishing fired all his top staff rather than give them shares at one point.