Is this a fair partnership agreement?

[Southern_Lenders]

When the time comes for me to look for a partner, I'm thinking that its only fair if this partner invests his own money as well. If he doesn't have any skin in the game, then i'm the one holding the bag if he leaves.

* I think any partner should invest at least 35% of their net worth if they are serious about joining my business.

* Also they will start out with only a 1% interest in the business for the first 3 to 5 yrs.

Whats a fair system here?...your thoughts.

[dslackman]

How much is your business worth & how much is the partner's net worth? If 1% interest = 35% of net worth, then the value transfer is fair. If your business is currently worth $1M (not the possible potential value in the future) and you are selling a 1% stake, you can only expect to get $10k from a partner. You can't control the % of net worth also.

[DerekS]

I think that's ridiculously arbitrary. 35% of their net worth? How much will it cost to fund the venture? How much involvement will this person have with the business? A 35:1 ratio? Who in their right mind would agree with that unless that ratio happened represent an equal risk/reward tradeoff, like DSLACKMAN noted above?

The partner's financial contribution should be based on actual numbers, not just arbitrary figure like "35% of your net worth."

Just my .02

[Southern_Lenders]

dslack -->Right now the business isn't worth anything, because we havn't started operations yet. Also if 1% = 35% of net worth then at 3% interest in the business, the partner would need to invest 105% of his net worth... do you see the problem here?

I'd like to raise 500k, but I'm only going to put probably no more than 35k into initial funding..at least at first (this is already a huge chuck of my net worth), however a partner may have much more he can invest, so that leaves me with a problem:

1. if the partner gives 35k also, does this entitle him to 50% interest in the company?

2. If he gives more, does this mean I should give up more interest in the business to where i am no longer the largest owner?..if so that aint gonna happen. ie if an partner gave me 350k..... what then?

side note: Can LLC's have limited partners too, or just general partnerships?

thanks

[DerekS]

If I funded 100% of the initial startup, I'd want a minimum of 50% stake in the company (ie control.) If my partner had no financial stake in the company, I'd expect him or her to have significant knowledge in the field of the startup (and myself little or none)- otherwise it's a lopsided agreement. I understand that in many cases one person brings the money and the other brings the experience, but I personally would want as much control as possible as it's my livehood on the line.

LLCs can have limited parternships- it's how we raised funds to buy new properties when we were leveraged to the hilt. We paid a guaranteed return based the initial investment. This allowed us to conduct business our way with zero interference from the limited partners (as long as their interest payments arrived every quarter.)

[k-rod]

I would say trying to go at it alone IF possible..much less risky..otherwise i would agree

[myfayt]

If the partner puts in the same amount as you. You need to offer a 50/50 split. If he/she puts in less than you, do a 60/40 split.

Don't say I will give you 1% of each item sold or anything. A partner is a partner of the company and deserves just as much as you.

[SteveG]

Your potential partmers net wort has nothing to do with you. When forming a partnership two people are bringing things to the table to invest. It might be just money, it might be ideas, it might be skill or whatever. If your partner feels you are worth 1,000,000 then he may be willing to invest 500,000 but I highly doubt you will find a partner like that. Your sense of lopsided value would have scared me off from the begaining. Steve