Profit sharing agreement for the web project

[DesignForge]

Hello Folks

I have a dilemma and would greatly appreciate your advice.

Background:
Couple years ago I was offered to work on the project (browser game making money on micro payments) for slightly lower rate in exchange for 5% profit share. I accepted the offer, but did not pay much attention to the agreement as I was happy to have something (paid) to do.

Now, after a few years the website is making very little money and my "partner" decided he doesn't want to invest any more in it, but at the same time he would like to see the project succeed. I was offered 50% profit share and more - up to £2k a month all the profit should be mine, only above £2k we split 50/50.

Dilemma:
Sounds like a fantastic deal to me and I would be happy to start putting all my efforts in this project as I can see great potential in it, but the problem is I don't quite trust the guy.

I was presented an agreement that is not at all formal document plus it says that I should be entitled the profit share from the company XYZ Ltd, while there is no company like that registered with the Companies House. When I pointed that out I was told that there is indeed no such company but we can establish one when there is a need for this...

Question:
I still would like to make a deal with the guy, but need a bulletproof agreement for that. He says that I should get him one that I will be happy with and he will sign it.
At the moment the payments from the website are being sent to the Paypal account of the company owned by my "partner", but this company operates other businesses so I cannot get a profit share from this company.
How can we sign this? Can the agreement simply say 50% profit from the money made by the website www.xyz.com?

Question 2:
I am also afraid that not having any shares in the company my "partner" can simply "sell" the project to someone (his mother for example) after I made it successful enough and I will be left with nothing as I don't have an agreement with the new owner. How can I ensure this doesn't happen?

I know this is not a lawyers forum, but I believe I can get at least some pointers for how to approach such problem.
If someone knows a good (and not too expensive ) lawyer dealing with similar cases, I would appreciate contact details to them, too!

Best
Karol

 

[Annoying Donkey]

Basing payment on profit can be a bad idea. Unless you have a clear definition of profit. Profit can be made to disappear with a bit of creative accounting.
The thing hasn't made much money after several years, so he's "generously" giving you 50% to make it work...? Doesn't sound like much of a deal to me...
I would offer to buy him out, or a small percentage for his idea or IP. Then take control of all money coming in so you pay him and you're in control.
There is a legal section on here...

 

[stender]

If you take on running the site you need to set it up under a company of it's own. All sounds too informal at present. what's to stop you launching your own site?

 

[webgeek]

You don't want paid on profit, you want paid on revenue, with books you can have independently audited.

Someone wanting to screw you over would simply have to calculate the trial bottom line, then pay themselves that amount as a bonus, thus leaving the company with 0 profits. Admittedly a simplistic example, but you get my point.

Unless you control the day to day operations of a business, going into a deal with profit sharing is a great way to get nothing. You want paid on a percentage of top line revenue.

The other way of course, a la Facebook, is to get shares in a company, only to find that another billion shares have been issues after that time and suddenly you own 1/billionth of the company instead of 1/10th or 1/100th or whatever was your initial share/dilution. Anti-dilution is a must if it was a shares based profit sharing offer.

You also want to make sure there's not some crazy buyout terms where you could get a cash equivalent of X, which then gets calculated that you get 2% of the profit over the past 3 year average (example).

Bottom line: If you're investing substantial time and effort in something, get it in writing and seek experienced legal advice before you sign anything.

 

[DesignForge]

thanks for your reply, stender.

If you take on running the site you need to set it up under a company of it's own

what do you mean by this? in general or in this specific case, so we can make the profit sharing agreement legal?

what's to stop you launching your own site

the website is a "sequel" of very successful project, making a lot of money in the past. this old website stopped working due to bad programmers working on this (or at least this is what I've been told). this project has a very large community involved, couple millions users in the database, tens of thousands of images drawn by illustrators - huge potential that I don't have.

 

[DesignForge]

thanks WeblinkPlus and webgeek!

Actually I think this is a good deal for me, considering the potential of this website. I would love to take this project over, but don't have any capital to offer right now. Do you guys think it is worth my time if the agreement was based on revenue percentage not profit and providing the guy establishes separate company just for this project?
Can I be sure with this kind of agreement to keep my "revenue share" even if the website was sold to some other company?

I didn't quite understand the part about shares in the company? Does this mean having 30% shares of the company means nothing, because another million of shares may be issued and my shares are suddenly only 0,3% of the whole?

 

[Webzsuite.com]

thanks WeblinkPlus and webgeek!

Actually I think this is a good deal for me, considering the potential of this website. I would love to take this project over, but don't have any capital to offer right now. Do you guys think it is worth my time if the agreement was based on revenue percentage not profit and providing the guy establishes separate company just for this project?
Can I be sure with this kind of agreement to keep my "revenue share" even if the website was sold to some other company?

I didn't quite understand the part about shares in the company? Does this mean having 30% shares of the company means nothing, because another million of shares may be issued and my shares are suddenly only 0,3% of the whole?

With 30% I am pretty sure that you are protected against diluting your shares as you have right to block this decision, of course issue is that there is always a way to bypass all of it.

I.e. guy seems to be fishy and I would be very carefully with him.

If you want to sign up for any income agreement (not profit as he could hire him up as a director and start taking salary to decrease company profits) then go for a income/profit from a domain and income generated from the IP's (the website code).
Do not go the road of fishy companies, as unless company owns 100% of domain and website code, then it is just a middle man.

Good level of protection offers trademark agreements.

I would ask you to think about this mix:
- trademark the domain name (without TLD so just YYYYY, not YYYYY.com)
- add domain name to the contract
- add website IP to the contract

- make 50/50% split any income - agreed marketing/hosting expenses .


Anything not formal is pretty much useless and for me guy looks like a very fishy guy, but I only trust legally binding documents and power of lawyers (some personal experiences)

 

[webgeek]

As long as you are getting 30% of revenue, you'll be fine on dilution. The exception is if you were given 30% of shares and told you were getting 'your share' of revenue, in which case they could issue 10,000% more shares and you'd be getting a pittance.

No idea if this is a good deal or not, since I don't know the business/market/etc, but 30% of revenue is generally a huge slice and a great situation given the fact many companies run at 50% gross profit or less.

If it's something you enjoy and believe in, it sounds like an opportunity that doesn't come around every day.

 

[DesignForge]

- add domain name to the contract
- add website IP to the contract

thanks for your input!

As for the domain name and/or IP I am not sure if that is enough to protect me - you can easily move the site to another server and change the domain name, can't you?
Maybe we should include the sentence like "Website can't be moved to another domain name, unless agreed by both parties"? Would that protect my interest?

 

[DesignForge]

Morning folks
I know these questions may be for a lawyer - is there anyone you could recommend in this matter?
Or do I have better chance of finding a professional posting similar thread in "Legal" part of this forum?

 

[Edith@TerraNetwork]

On a different note, before you get involved make sure that everything the guy has done so far is 100% legal. You wrote that he's a bit flakey, so that's a concern. I know of an IT business where the new partner got dragged into court because the old partner had not been licensing the software they were selling. Get everything checked, make sure everything is above board.

 

[Paul Norman]

For me, this dilemma is simpler.

You state 'I don't quite trust the guy'.

That would me my cue to start walking. Away.

 

[Annoying Donkey]

For me, this dilemma is simpler.

You state 'I don't quite trust the guy'.

That would me my cue to start walking. Away.

Me too...
I work on a profit sharing basis and the starting point is "Can I trust this guy?". No legal agreement can substitute for a trustworthy partner.

 

[serendipitybusiness]

As well as other suggestions here. Have you thought about also writing into the agreement that you host the website, so he has control of the domain, you have control of the code you wrote, that way it will be harder for him to sell it on?

 

[Deleted member 281732]

Now, after a few years the website is making very little money and my "partner" decided he doesn't want to invest any more in it, but at the same time he would like to see the project succeed. I was offered 50% profit share and more - up to £2k a month all the profit should be mine, only above £2k we split 50/50.l

This sounds like a super lousy deal to me.

The business is barely making money, so until it does, you're making 100% of nothing.

If somehow the business is successful on the back of your hard work, your partner starts making money for nothing.

On top of that, you don't trust the guy.

I'd walk.