50-50 split to 60-40 split? Help Please

[Dusted83]

First of all, I'd like to introduce myself, I'm R0N I live in the UK and I am just about to open up shop for the first time. I'm new to the forum so please go easy on me.

Thanks,

Myself and a friend have recently gone into business together and everything has been fine up until last night.

Basically the whole business model, the products, the promotions, social media, advertising and branding are all my work, I have spent a great deal of time getting everything ready for opening up our business.

However my business partner has put in the majority of the money and I have put in all the leg-work to get the business up and ready to run including the above.

Up until last night the split was a simple 50-50 decision which it has been agreed it would be from the start. However the price of materials and signage, solicitor fees and what not has increased a fair amount and my business partner now says he wants a 60/40 split in his favour as he has put in the money.

Whilst I understand this I still feel like I am being out-done of my 10% because he has done no work whatsoever and I have spent the past 4mths getting things rolling. I'm not a greedy person and it isn't even about the money percentage-wise, my issue is that I want the business to be run in my way, which again it was agreed upon at the start.

The whole thing is my idea and business model and my partner is basically a "somewhat silent investing partner".

His decision is that because the fees have risen considerably that he deserves that extra 10% however I am aware that it then allows him all the power and leaves me with very little to retort back to should he decide to change everything!

What I would like to do is come to an agreement where by he can take a 60/40 share in revenue until his initial investment has been paid back to him, or at least a percentage of that amount has been paid back to him, whilst I still receive 40% revenue.

Additionally I would like to keep the business to a 50/50 split so that I retain the rights to remain in charge of the business and run it in the manner it has meant to be from the start.

We have not quarreled or argued, it has just been mentioned over the phone that he wants 60% due to his investment.

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IN A NUTSHELL

(To those who don't want to read my essay like post - sorry about that)


I would like to remain 50/50 for ownership of the business but allow him 60/40 in his favour for revenue generated so that his risk is reduced. He already owns the assets in the business I am merely 50/50 owner at present and do not want to lose a further 10% for a business I have thought up, created and worked hard for.

If there is any way of doing this please let me know (I'm from the UK by the way too).
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One last thing too, I am also wondering if it is possible to remain 50/50 partners and have something in writing that it is returned to my partner as 60/40 should we start to struggle financially, is this possible too?

If not then are we able to draw something up which states we have 60/40 ownership in his favour but I retain the overall rights as a 50/50 ownership? or even that I let him have 60/40 in his favour and am able to then take back 10% at a later date (after sufficient ROI to him etc).

Like I said before my MAIN issue is that I want to run my business my way, the way it was agreed, I DO NOT want to become a employee/manager in a store I own a percentage of but have no say in.

Please help.

Many thanks,

R0N

 

Ron Your agreement is 50/50 there is no reason on earth that you should change this.

You may not be greedy but it sounds like your partner may be.

I don't understand about paying back his original investment why?

Thats not how business is done as it would mean he would get a 50% stake in the company for nothing more than a loan.


Earl

 

[Clarkmans]

Hi Ron

Are you going to trade as a partnership or a company?

 

[Dusted83]

Hi Earl,

Thanks for your speedy reply, basically he has put in the majority of the money (nearly £30k) Where I have done all of the work, the graphics, the business model, dealing with solicitors and letting agents etc, as well as websites and training the staff.

Because of this I can see his initial need to have the risk of losing £30k to be minimized as much as possible (hence his request for 60/40) however I don't see how 60/40 would actually help him all that much as the payments for assets, stock and other have mostly gone through his other business (as a guarantor for those items).

 

[Dusted83]

Hi Clare,

It's a Ltd company with 50/50 shares already set up and signed through companies house

 

[Clarkmans]

Hi

I think if it is already set up he's going to have great difficulty changing it now and I do not see any reason why you should agree to this.


I would suggest you speak with your accountant about this as presumably this investment is being classed as a directors loan and if the business does well it can be repaid and then the profits can be split equally. I do not see any reason why he needs a higher share than you but it is something to talk to your accountant about.

If you don't have a shareholders agreement drawn up then you should think about getting one of these now in case of any future disputes.

 

[The Resolver]

As Clare says the best route is for you both to enter into a Shareholders Agreement under which you can agree arrangements to meet the wish for him to take 60% of net revenue/dividends whilst still only having 50% of the actual ownership of the company. There are more complex arrangements you can reach such as by having two different classes of shares, one with profit rights but no voting rights and the other with voting rights but no profit share rights. However a much simpler arrangement would probably be all that is needed here.

Since, apart from some self-destruct approach such as by enforcing repayment of the loan, he cannot force you to agree to him having a greater share of revenue, you therefore are offering what he cannot oblige you to give him. An Agreement can then cover a bundle of other issues that might avoid disagreements in the future. See the page on Shareholders Agreements which explains the benefit of an SA and what is typically included.

Give me a call if you would like more information.

 

Because of this I can see his initial need to have the risk of losing £30k to be minimized as much as possible (hence his request for 60/40) however I don't see how 60/40 would actually help him all that much as the payments for assets, stock and other have mostly gone through his other business (as a guarantor for those items).

His investment is in lue of doing any work.

would we not all like to invest with a gaurantee we get our money back.

Earl