Early business relationship woes

[halesowenmum]

Hi. Efforts have been afoot over the last few weeks to start a business with someone I work with in my day job. We are both employed at the same company and wish to start a co offering products and services that do not compete with that co's area of business. Absolutely no intention to be approaching/poaching their customers or anything like that, or any other dodgy ways of operating.

I was put on a 3 day week in April and even regardless of this (although of course it is somewhat motivating!), I am already highly motivated to get going with the business because I have a strong desire to strike out 'on my own' as I'm unable to do a role where I work currently, that challenges me and uses the skills I have in a particular more specialist business area - which is incredibly frustrating not to mention demoralising.

As the weeks go by progress to set up the business is considerably behind where I feel it should be at this point and yesterday afternoon it has emerged really that we have very different mindsets about the setting up of the business and this has manifested in demonstrable differences in how much time and how much priority we are each putting in to proceedings.

When I thought we were on the same page we registered the domain name in his name as our original intention was to each start self employed until we got a contract big enough to justify going ltd. That now reads like a risk if you like. And the forming of a ltd co now also reads like that too.

So far I'm putting in considerably more hours to setting the business up which I'm approaching in a considered and careful way whilst wanting to get on and make genuine progress so I am not being reckless, I'm setting us up with proper banking, accounts and office/software systems to enable effective operation very much wanting to start off on the right foot, properly organised (dragging of feet on this stuff as well - we should both have business sole trader bank accounts by now, yes, only I've done it, not him). I'm working hours and hours more on the business than the other person - it appears there's vastly different prioritising going on.

If we go limited it would probably be (I guess) 50/50 on the share ownership but in light of how much less effort and priority my colleague is applying and has been for many weeks, this which didn't overtly concern me before, concerns me now.

The moment we went ltd the domain was to be transferred into the registration/ownership of the company - we initially just wanted to grab that name obviously before someone else got it and we couldn't use it at all.

I'm a bit not knowing how to proceed - do I insist the ltd co is formed and the domain transferred (so at least I've got part of it), but we do something different to 50/50 with the shares?

I'm not understanding, legally/in ltd co operations for eg if we each had 50% of the shares and were both directors, if one director did 80% of the work and the other 20%, would they still each be due the 50/50 dividends (which would appear somewhat unfair) but if that is the case, can a supplementary legally binding agreement of how dividends/salary is to be paid override that 50/50 and accommodate payments to directors based more on how much revenue they bring in?

Yesterday morning I was about to say let's get on and incorporate and get the domain name switched over to the company, today I'm more worried about doing that because if we were going to end up with a 'don't worry, if you do all the work you'll get 100% of the dividends'-type verbal agreement that's all well and good but obviously can't be enforced if it has no basis in law.

Sadly the whole premise of the business we had planned was very much that our vision was that it would work because we're both in it due to our combined skills and how incredibly well we work together and complement each other not only with our differing skills, but with our personalities, but it's clear we have totally different levels of motivation and whilst my colleague is working their normal 5 day week (on a much higher salary than I'm on) I don't think the disparate levels of effort are going to change or be workable for me (I'm struggling to tolerate them now) plus the first product we're looking at launching is one that only I can design and deliver, so we would go straight into a potentially tricky situation.

Be grateful for thoughts on this as I probably need to have a conversation today and would like to be able to set out some kind of workable solution (if there even is one) that I can put forward.

 

[dotcomdude]

Dividends are allocated according to the proportion of the relevant shares that you own, nothing to do with how much work you’ve put in.

You can both be Directors, and can be paid different salaries.

In my experience, once you feel a partner isn’t pulling their weight - it never gets any better and just nags at you until you do something about it.

 

[halesowenmum]

In my experience, once you feel a partner isn’t pulling their weight - it never gets any better and just nags at you until you do something about it.

I fear, sadly, that you are correct.

 

[Mr D]

50 50 share split means they get half the dividends. Does not matter if they work as hard as you or if they stop working at all - still entitled to half the dividends.

However directors do not get dividends, they get wages. So by mutual agreement the salary could be split based on work done.
Except then get into the realm of arguing. And with two of you being directors then disagreeing can cause problems.

Sounds like better to go each their own way and collaborate as needed as separate businesses using contracts. So if he needs you to help out he hires your business under contract to do xxx and your business bills his.

You have come across one of the more annoying aspects of trying to do a business with someone else. Different priority different timescales.

Still better to find out now than a week after company goes live he decides to stop working leaving it all to you to do the work while he lives off his dividends.

 

[STDFR33]

Frankly, this is going to end in disaster.

The signs are there already and you know it.

You could set up a partnership and have a very good partnership agreement in place. That won’t stop the disputes you are going to encounter.

You could set up a limited company with a good shareholders agreement in place. That won’t stop the disputes you are going to encounter.

The resentment will grow and you’ll wonder why you just didn’t make a go of this on your own.

 

[halesowenmum]

You have come across one of the more annoying aspects of trying to do a business with someone else. Different priority different timescales. Still better to find out now than a week after company goes live he decides to stop working leaving it all to you to do the work while he lives off his dividends.

Yes, I agree. I've just about managed to (barely) tolerate what has been a very disappointing lack of progress - I even used some owed bank holidays to 'take a week off' a couple of weeks ago specifically in order to do work on the business and significantly move it along - he didn't call or meet up with me once to progress it in any way shape or form during that time. Then yesterday when he said 'this could take a long long time to get going' my first thought was, well it will only take as long as the effort put in and how much its prioritised! Of course no business is fully fledged from day 1, but getting it to the point where it can trade doesn't have to take an incredibly long time and can be planned really well and with all due diligence; I don't see that it has to take a long time.

I feel I'm more at risk of being terminated or furloughed than he is and looking back the last 6 weeks or so could actually represent 6 weeks of lost time on my part, which could have been spent just setting up a business for myself, not for/with someone else.

In many ways this is probably as you say actually a very good thing as I now see that we are poles apart really, in a way I hadn't previously thought we were - it had niggled me, the lack of commitment, the unwillingness to join me in also purchasing a dedicated business laptop so we can keep this work entirely separate from our day jobs. I kinda feel I've been a bit led up the garden path but at the same time it can take time to work out what your risk tolerance is and I think only him being also put on a 3 day week would have provided an appropriate incentive to him to enter into a more risk tolerant headspace (iykwim).

 

[halesowenmum]

Frankly, this is going to end in disaster. The signs are there already and you know it. You could set up a partnership and have a very good partnership agreement in place. That won’t stop the disputes you are going to encounter. You could set up a limited company with a good shareholders agreement in place. That won’t stop the disputes you are going to encounter. The resentment will grow and you’ll wonder why you just didn’t make a go of this on your own.

I have to agree.

 

[halesowenmum]

Thanks for everyone's thoughts, I think I've got some re-thinking to do as I no longer have confidence in proceeding on the plan as it currently stands.

Much appreciated as a great sounding board, thank you all.

 

[Stas Lawicki]

I'm a bit late to the party but I would say you are lucky - extremely lucky! This sort of thing normally happens a few months into leaving a job, setting up a business and incurring expenses and then realising the other person is useless - I've been there. It's painful!

Who cares what it's called - I am sure you can think of another name or domain. In a new co with no material brand, it makes no difference.

Don't do anything else with this person. Have a G&T, congratulate yourself on not wasting time and money and start afresh.

Be very wary who you go into business with. Rarely is it a equal footing...

 

[Financial-Modeller]

You mention working together well, but does the venture that you envisage need the input of the other person?

 

[halesowenmum]

Thanks Stas. Very disappointing but ultimately, much better to know now. Thank you.

 

[halesowenmum]

You mention working together well, but does the venture that you envisage need the input of the other person?

That's a very good question. In the products and services we were going to do yes it would have been absolutely brilliant with the both of us together due to the combination of skills and experience and some quite unique services that we felt we could develop. So it's a shame on that score because I genuinely believe it would have developed into something pretty special actually.

But. I've probably done 95% of the hard graft so far and that's just not a. fair or b. sustainable.

I think the idea of me doing the elements I was going to do anyway, but solo (the ones that play to my strengths), and then wait and see just how much he does to develop his areas (I'm suspecting not that much to be honest but happy to be surprised) but it will be separate - separate companies, separate domains. Then, if they can't land a contract without one of my areas of expertise, they can of course feel free to call me in (at the appropriate fee of course!).

 

[MBE2017]

You have had a very lucky escape. From the tone of your posts I would not be suprised if your potential partner never even started. Go it alone, get help in when needed, keep the lot.

You have done all the work, so keep all the money. I would suggest saying you have changed your mind, heart is not in it, you don’t feel his is either, didn’t realise how much work was involved blah blah blah.

I reckon this guy will suddenly confirm all your worst fears.

If you proceed, keep it quiet, people have a habit of talking, employers have a habit of not liking you doing things in your own time. Take it from the voice of experience.

I know it can feel daunting going alone, but you have already shown you have 100x the drive of your potential partner, he would only have held you back and dragged you down. Best of luck.

 

[halesowenmum]

You have had a very lucky escape. From the tone of your posts I would not be suprised if your potential partner never even started. Go it alone, get help in when needed, keep the lot.

You have done all the work, so keep all the money. I would suggest saying you have changed your mind, heart is not in it, you don’t feel his is either, didn’t realise how much work was involved blah blah blah.

I reckon this guy will suddenly confirm all your worst fears.

If you proceed, keep it quiet, people have a habit of talking, employers have a habit of not liking you doing things in your own time. Take it from the voice of experience.

I know it can feel daunting going alone, but you have already shown you have 100x the drive of your potential partner, he would only have held you back and dragged you down. Best of luck.

Thank you MBE, for your thoughts and direction - and recognition of my energy and drive!

I think this business will never happen under his steam. In about 6 weeks all I managed to pin down with him was the company name and after battering them over the head they finally registered the domain. Key milestones such as deciding on look, branding etc which prevents clarity for website design or the creation of branded materials (and thus I have not been able to create any product/service collateral - SO frustrating).

I've just booked off some annual leave so with all of my regular 2 non working days a week that should give me a lot of days to kickstart things a bit, for myself.

I do feel a bit daunted I have to say but, best foot forward, if you don't try, you'll never know. No better time than now (thank you Covid-19!).

I've been told today my 3 day week working will continue potentially until September so I see it as I've got that time to quietly prepare (not launch) the business. I wonder if whe I get to a certain point I should say to my work look I'm on a 3 day week and I do need to boost my income so wanted to get permission to do that on the days I'm not working for you, I'll be using my own equipment, happy to work within any fair conditions ie I'm not poaching their customers, not aiming to compete, not offering any services that they offer or are planning to offer.

But any thoughts on that gratefully received of course.... I have no NDA or Non-Compete, just a basic contract of employment. I'm just nervy that doing the 'right thing' ie being fair to my work and speaking up about what I'm doing (at the right moment) = risk of immediately being given my marching orders; but I can't predict that and will need to balance a period of time being v discreet with the need to be honest at some point or I won't be able to market the business if I'm totally 'on the down low'.

 

[MOIC]

I'll be using my own equipment, happy to work within any fair conditions ie I'm not poaching their customers, not aiming to compete, not offering any services that they offer or are planning to offer.

Does your business idea in any way whatsoever fall into the same category as where you are currently working?

 

[MBE2017]

MOIC asks the most important point, but even if you do not believe you will be competing with them, they might feel you are no longer as committed to them, which at a time of potential lay offs might not be the best image.

Maybe you can indicate the market your employer is in, what sort of business or service you are thinking off? I understand if you prefer not too, but it is going to be hard to be of much help with such few details. Bear in mind as well, if you discuss your suggested service with your employer, they might think of competing against yourself.

 

[SillyBill]

Thanks Stas. Very disappointing but ultimately, much better to know now. Thank you.

Some words of advice: I would never in a million years enter a 50:50 with anyone now. Recipe for disaster. Either I am a minority interest and I accept that and therefore I expect the other person(s) will take the lead and the majority of the accountability and responsibility. Or, I take the controlling interest and I take the lead and the majority of the accountability and responsibility. And if it is the latter, if I am not happy that the other partner is pulling their weight the share agreement will provide the mechanism by which a resolution can be found via a pay off to an agreed valuation metric.

The agreed MD (majority interest) should also assess employee shareholder salaries relative to market rates for the job. Appraise annually. And do so objectively. Equal pay is generally ridiculous as very rarely is it equal contribution. If I am MD, I simply expect an MD's salary and everyone else will earn less. If not, I won't do the job; I know what it takes to hold that position. If I am not MD, I will accept the rate appropriate to my role and level of responsibility. Again that should be the clear from the start. When I've had this protested to me ("we should all earn the same amounts"), I've explained, I would gladly swap positions, even consider offering to sell down shareholding, and take the lower rate but I expect them to perform. Needless to say, in that case not protested again.

This may sound cut-and-dried but it has been learned from bitter experience.

But also I would say don't confuse hours worked with contribution. I've employed people who worked 10-12 hours a day and replaced them with someone who does the same job in 8. I don't give a stuff how many hours are done, only their impact on the business. Equally I've worked with business partners who never took a day off all year and worked 12 hours a day because they considered themselves so essential. People can have delusions about importance. I knew they weren't (as proved to me in so many instances when such persons do hang up the gloves). I won't buy it when told what remuneration is payable owing to hours at the coalface unless I know all of those hours are of value to the business. I say this because I have worked with partners who I only expected in the business once in a quarter for a meeting but I would consider them fair value at £20-30,000 per annum salary. That is quite a high hourly rate.

 

[Porky]

HM

Honestly, look on this as a positive that you are smart enough to recognise this now. In a high number of cases in an effective partnership one partner often ends up doing far more than the other. Very quickly this guy will feel like a monkey on your back. Get the hell out of it Now!

Be brave go it alone, draft in part time support in the future if you need it but don’t seed half your company to someone who doesn’t share your values. Get yourself a start up loan, recruit the skill sets you lack in your business and go for it - you will thank me for this!

Imo You don’t need this person you only probably think you do because business can be a lonely place at times, it’s all new and you want someone to bounce ideas off?. You would probably better off looking for a low level Angel Investor or some other mentor to talk to.

Come back here, chat to your mum, partner, friends family or anyone on your level but cut this one loose. You can always think of a new domain/brand etc, that’s the easy bit!

Good luck

 

[Bob Morgan]

BUSINESS PLANNING 101 - Where's the Escape Plan?

 

[Murray Dare]

HM

Honestly, look on this as a positive that you are smart enough to recognise this now. In a high number of cases in an effective partnership one partner often ends up doing far more than the other. Very quickly this guy will feel like a monkey on your back. Get the hell out of it Now!

Be brave go it alone, draft in part time support in the future if you need it but don’t seed half your company to someone who doesn’t share your values. Get yourself a start up loan, recruit the skill sets you lack in your business and go for it - you will thank me for this!

Imo You don’t need this person you only probably think you do because business can be a lonely place at times, it’s all new and you want someone to bounce ideas off?. You would probably better off looking for a low level Angel Investor or some other mentor to talk to.

Come back here, chat to your mum, partner, friends family or anyone on your level but cut this one loose. You can always think of a new domain/brand etc, that’s the easy bit!

Good luck

This is good advice, especially as you haven't really put that much effort into the business yet as you are just getting started.

 

[Murray Dare]

HM

Honestly, look on this as a positive that you are smart enough to recognise this now. In a high number of cases in an effective partnership one partner often ends up doing far more than the other. Very quickly this guy will feel like a monkey on your back. Get the hell out of it Now!

Be brave go it alone, draft in part time support in the future if you need it but don’t seed half your company to someone who doesn’t share your values. Get yourself a start up loan, recruit the skill sets you lack in your business and go for it - you will thank me for this!

Imo You don’t need this person you only probably think you do because business can be a lonely place at times, it’s all new and you want someone to bounce ideas off?. You would probably better off looking for a low level Angel Investor or some other mentor to talk to.

Come back here, chat to your mum, partner, friends family or anyone on your level but cut this one loose. You can always think of a new domain/brand etc, that’s the easy bit!

Good luck

This is good advice, especially as you haven't really put that much effort into the business yet as you are just getting started.

 

[Financial-Modeller]

I've just booked off some annual leave so with all of my regular 2 non working days a week that should give me a lot of days to kickstart things a bit, for myself.

I do feel a bit daunted I have to say but, best foot forward, if you don't try, you'll never know. No better time than now (thank you Covid-19!).

These two admirable sentences set you apart from your colleague!

Use your time to proceed on your own and try to come to a mutually agreeable arrangement to reward him for his skills on a PAYG basis as and when your business needs them.

 

[MBE2017]

I think this business will never happen under his steam. In about 6 weeks all I managed to pin down with him was the company name and after battering them over the head they finally registered the domain.

I reckon on your own you could have done that in 10 minutes, let that sink in. When self employed your most valuable thing is time, you can never get enough, you cannot make more of it, you can only waste it.

 

[halesowenmum]

I reckon on your own you could have done that in 10 minutes, let that sink in. When self employed your most valuable thing is time, you can never get enough, you cannot make more of it, you can only waste it.

You're so right, thank you. Just processed application to incorporate a new limited company - one director - me .

 

[halesowenmum]

I need to figure out now how I go about things. Felt super positive yesterday and did loads of early steps stuff on a solo ltd co just for me, but woke up this morning not so much concerned with the going solo bit, but with the whole idea - this being due to the risk of being sacked more than anything else. Had a few comments on this thread already but it would be so helpful to work things through a bit with the benefit of any genuine experience of how others here went about this in their own situations.

In some of the research I did on IP, several commentators stated that the v worst thing you can do is sneak about - that never goes down well and in general I'm moved towards being open and honest as a general preference in all things - and, let's face it, the company I work for now is having to furlough a lot more staff - so who knows, I could be sacked at any time as could any of us (I've not yet been there quite 2 years) so in some ways, not getting a business going could be a bit of a dim approach too.

But also previous situations people on here may have experienced aren't actually fully transferrable to current times which at the minute times are not normal and to some extent, I am viewing that as a positive / opportunity (obviously, not making light of the awful aspects that prevail). Can there be any other circumstance more likely to justify asking for written permission to be allowed to do other work than having been put on a 3 day week due to C-19? I'm back on a salary I was earning in early 2017, it's a massive drop. In being on a 3 day working week ostensibly until Sept, to me this potentially provides a pretty unique opportunity to leverage that situation and have a fair amount of justification to say "having told me it's going to be 5 months not three months on a 3 day working week, I have no choice but to try and find some income from elsewhere on the days I'm not working for you and I'd like permission to do that" (I am a single parent so the pressure's always on to maintain £££). I feel there's three options potentially:

Fly under the radar
It would be v difficult to effectively market and promote 'on the down low' all but ONE of my planned services (this one could I feel do that as it's a completely different sector with completely different customers). So I'd create a website that acts only as a shop window to advertise this single product if the 3rd party 'middle-man' if you like who routinely provide these kinds of offers but I would deliver the actual product, is likely the only persons who would deliberately want to check out the site. Benefit is I get to get something started, it might provide some income, I think it can be done without them finding out, it wouldn't violate any IP, and if I was sacked or laid off I've got something going to keep me going before I go ahead and launch other services.

Fly under the radar but leave the door open to other services
As above but I would also list out all my other services as well. I could prepare the collateral associated with those other services now and if someone showed an interest in this other stuff then I'd be able to sell it to them. It's still a similar level under the radar but if someone from my work did see something it would be obvious that I was doing things which were in the same type of business service, albeit different products and more specialist services entirely, none of which the company I work for offers or is planning to offer.

Both the above could see me taking a risk on being discovered by deciding not to talk to my company to ask for permission to do other work. But I partly don't feel that's necessarily morally the right thing to do but I'm also canny enough to know it's risk vs reward and so on. I still have to do market research with a few contacts to see if they in their specialist sector think it's something they would purchase if I launched it so I have that at least before I go ahead and do either of the above options.

Full launch of everything as fast as I can do it
Launch the whole thing (and this would definitely be with my current employer's 'blessing' ie having got written permission first). Benefit is more services, more likely someone will want one of them, better value out of all of the investment so far, more fun!


Our COO who I talk with regularly is approachable and there'd be two goals to having a conversation with him: 1. to get formal written permission (as stipulated in my contract of employment) to be expressly allowed to do work outside of this company I am employed by now 2. to demonstrate I'm not trying to sneak around and to provide assurance to him that I do not have intention to directly compete, steal customer contact info or poach (and realistically, as a one-woman brand new start-up, how much competition am I really going to be!).

Thoughts?

PS: Would you believe, after our employer putting loads more people on furlough just yesterday, the person who was to be my partner but hadn't engaged with that process over many weeks, now wants miraculously to dedicate more time to 'the business' and 'take it forward'. Now that the spectre of reduced income has come to them, now they want to take it forward. I'm pleading the fifth until I know more with the benefit of you guys input, before I respond.

 

[Mr D]

They could decide to get rid of you this month whether you ask or not.
So plenty to gain by being open and not much to lose.

Having your own business is scary, frustrating, terrifying, exciting and will cause you to grow in ways you cannot as an employee.
Think of it as a new baby - different to other babies and without the nappy content.
Openness and honesty. And if they say no then you could if you wished put some plans on hold while working on others...

 

[2020Lawyer2020]

It is good you have checked your contract as it is common that you are not allowed to do what you have already done - start a business, even if non-conflicting, whilst employed. You do not want to find you are out of a job due to breach of a clause and are subject to a restrictive covenant which stops you for a reasonable enforceable period starting the new business too.

Another thing to check is what was "agreed" with your proposed partner. You do not need a written contract to form a partnership or business together and both have taken steps for this eg he registered a domain name in his name etc. So as with the employer situation again it would be a good idea to make sure your ex potential partner knows what is happening. He might even be happy to transfer the domain to you or on the other hand might want to stop you using any intellectual property which may be his (or his and your current employer - again check the employment contract although I suspect you just did some business planning rather than generates much IP)

 

[halesowenmum]

It is good you have checked your contract as it is common that you are not allowed to do what you have already done - start a business, even if non-conflicting, whilst employed. You do not want to find you are out of a job due to breach of a clause and are subject to a restrictive covenant which stops you for a reasonable enforceable period starting the new business too.

Another thing to check is what was "agreed" with your proposed partner. You do not need a written contract to form a partnership or business together and both have taken steps for this eg he registered a domain name in his name etc. So as with the employer situation again it would be a good idea to make sure your ex potential partner knows what is happening. He might even be happy to transfer the domain to you or on the other hand might want to stop you using any intellectual property which may be his (or his and your current employer - again check the employment contract although I suspect you just did some business planning rather than generates much IP)

Yes you'd be right, we've not created anything yet.

I wouldn't want that domain now as I'm creating something completely different and separate with a far more singular purpose. I guess re your first paragraph, it does make me think, what exactly does constitute 'starting a business' - having an idea, incorporating a limited company, starting to trade in some form? (Splitting hairs I know but I wouldn't say I've created a company yet (I've no website, nothing to sell, no associated bank account)- wonder if there's a legal definition of what would equate to "you've set up your own business"? If a restrictive covenant were to be applied, would the threat of such not be written overtly into the contract?? All it refers to is of course various paragraphs about IP but in terms of doing other work, it only says 'obtain written permission'; there's nothing else, no NDA, no non-compete.... are you referring to what they could impose if they decided to actually sue me??

 

[Stas Lawicki]

And relax.... You are way over thinking this stuff.

The reality is no job is secure or safe. Especially not with cv. Working for one's self is not secure either. So on balance it comes down to what you want and makes you happy (as I've said before).

Your waking up with a negative mindset is entirely normal and for most people it would be a blip until you are settled.

Plenty of people on here will have stories and examples that will scare you or put you off. Some might well be true. But as long as you are reasonably careful and do not take the micky, you'll be fine. Your ex employers can't stop you earning a living, most won't bother bringing any action save a Corp lawyer's letter to warn you off. As long as you're not stealing from them or preventing their business from functioning, most know it's not worth chasing you (there is at least 1 person on this thread that would disagree with me as I've said this before and they did then!).

Life is too short to get hung up on the what ifs and minutiae of contracts. Get on with it. Save your money as you earn it, cut back on your expenses and if you start raking it in, spend more but keep saving. Give yourself a buffer for the time when things might get shakey or another cv comes along.

Otherwise, get going. You'll still be fretting and wondering in years to come. Or you could be looking back and appreciating it was the best move you've made.