Bringing in a future partner to the business?

poshgaffer · Sep 9, 2005

Hello,

I am currently working as a soletrader (recruitment consultancy) & wish to bring in a partner at some point next year. We have worked together in the past & I am sure that he is the right person for the job.

However, due to the fact that I have more or less set up the business completely on my own & that he wants to come in with some kind of stake, I am unsure as to what may be reasonable.

Would it be better to just employ him or to change the status of the company to LTD or a partnership next year?

Any help would be appreciated?

Kind regards,

poshgaffer :?

Alpha · Sep 9, 2005

Well poshgaffer

The fact that you have already worked with him in the past is a good start as you should be more comfortable with his capabilities.

What is reasonable from a partnership/Limited company point of view is really down to a discussion between the two of you.

Currently as a sole trader all the assets/ liabilities belong to you as well as any goodwill that you have bought into the company (eg ongoing relationships with clients that will bring in further business in the future)

I presume by taking a stake you mean that the other individual will invest some money into the business.

Bear in mind that the individual will then contribute to the future profits of the business and so if he works the same hours to develop the business he should be entitled to 50% share of the profits going forward.

In this case find out what your net value of the business is (Total assets less current liabilities) estimate and agree a figure for goodwill and then use that as a base.

If the above calculation comes to say £10,000 and your partner wants to invest £5000 then set an agreement that should the partnership dissolve then you will get this amount out first before taking anything further in proportion to the partnership agreement.

If you do set up a partnership (Or if you want to limit any liability an LLP) then make sure that you get a signed partnership agreement drawn up (usually by a solicitor).

poshgaffer · Sep 12, 2005

Many thanks for that,

My future partner & I have agreed that he will take 25% of the operation when he joins. What sort of legal company form should we go for? & how do we choose someone?

Many thanks,

poshgaffer

daveashton · Sep 13, 2005

Ok

Ltd or no Ltd

Ltd gives protection so that if things go wrong you dont lose everything.

From a sales & marketing perspective it also makes you like a more long-term company.

For more info ask a beanie on the accounts forum bit of this site

The Partner bit

A simple question, after you have both taken out a salary will the company make more than 25% extra NET profit with him and if so how much are your forecasting. This number is key.

I have no problem giving half of the BIZAL group away if someone makes it 10 x more profitable. If they only double the profits I would still be no further forward. (yeeks this is hard to put in writing)

Next look at what possibly looks like daft issues.

What can he spend? If he breaks this rule what happens?
Who does what by when each month/ quarter/ year. (roles and responsibilities are a major issue in most companies)
Again if deadlines are not met what happens?

If you disagree and overrule him, he could be annoyed and maybe not perform as well.

Holidays and who gets rewarded for closing deals during these periods

This is a BIG step and even though 100% of a company is worth 0, having someone else in as a director is a huge move especially if they have similar skills i.e. he is a recruitment consultant.

Sorry if this sounds negative but as a sales development company we see so many fights when things either go wrong (blame culture) or go well (greed) and hence beg caution.

SuffolkDesigns · Sep 13, 2005

Mkae usre to put everything into writing, a good agreement will protect both of you and prevent problems in the future.

As Dave mentioned above, what can he spend ? With my first partnership we included this in the agreement, so that any purchases under a set value could be made by either of us at any time. If the cost was over that value it would require both of us to agree to the purchase.

Clearly state what both of your roles in the company are. If he works hard and you don't he will be upset at you getting 75% of the dividends unless it is clearly stated that you have to do nothing (not saying you won't work, just an example)

The more you put into writing now the less arguements you will have in the future.

Jayne · Sep 13, 2005

I have a friend who had a really good business, he had a hard working employee and friend who he worked with for years, therefore he made him his partner with a small cash injection from this chap. His new partner changed overnight, he was lasy, stole from him and nearly made him bankrupt. In the end he had to get a bank loan to buy this partner out and is slowly trying to rebuild. So please be careful. I think I would probably just employ this man with a good wage and see how things go. But it is up to you, think carefully and make your own mind up.

Jayne

poshgaffer · Sep 13, 2005

Thanks people for the good advice.......

poshgaffer

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