Solo to Partner- equity sharing

[workandgrow]

Hey everyone. I started a business about a year ago after developing a product I thought could be marketed. While it started pretty nonchalantly, a lot of people have shown interest in the product and I'm noticing more of an opportunity to mass market it. However, I'm still a business student (graduating this May) and have little experience in the business world.

Now I've found someone with more business experience and knowledge who would like to join the company as an equity-holding partner. I am a very independent and free-spirited person, always trying to think outside the box and toying with big ideas. My potential partner takes a more pragmatic approach to business and seems to know more of the ins and outs of the business world, which could be a good balance for a partnership. It also means occasional disagreements, but overall we work well together.

While having a partner join me sounds good, I have a few hesitations and lots of questions about it. It's hard for me to give up equity and control of something I've been working (somewhat casually) on for the past year. It's also obviously nice that I own every penny of the business and that if I ever wanted to walk away from it I can just transfer all the funds to my business account.


1) What are my options for sharing equity? While I have not yet launched the product to begin sales, it is a product that could potentially sell really well. My "partner" would like to have 35% of the company and would be willing to buy in for what it's worth. How can I value a company (it's an LLC) that I have put a few grand and a year of work into? Technically, it's not worth much based on these two factors, but could be worth a lot once sales begin. I'm just a little apprehensive to hand over 35% of the company. What are some other options I have for sharing equity besides handing over a simple percentage? Stock options?

2) My brother is also interested in joining the company, and he would be good for marketing with photoshop and video-editing skills. However, I am not sure if this means he should have equity in the company. I don't have the money to pay him as an employee, but is there any other way I can make it worth it for him to have on board?

3) How do we form a legally binding contract for the partnership? Does it need to be with a lawyer? What kinds of things should I consider in the contract? For some reason I feel like I'm losing more than 35% by giving up 35% of the company. Are there other safeguards I can put in the contract to ensure that I get my share (royalties, contingencies, etc.)?

4) How does it work with salaries? As the only owner, I can transfer any money from the business account to my own account whenever I'd like. If someone else owns 35%, this isn't the case anymore. So how can I figure out how much I have a right to? This will be my only form of income. Can I just decide how much money should go towards salaries, then I get 65% of it, and he gets 35%?

5) If the business ever takes off, I would honestly like to sell out and move on to something else (I enjoy working with this business, but I have many other things I'd like to do as well). If I own 65% of the company, could I theoretically transfer 65% of whatever is in the business account to my personal account at any time?



Sorry I probably sounds completely lost and dumb with all this, but honestly I am pretty lost and dumb and don't want to make a bad decision. If you could help me out or at least point me in the right direction I'd really appreciate it. Knowledge has to start somewhere, so any feedback is welcome!

Thanks!

[Dmommy]

If you have a great product/idea, there are ways to do it yourself. Think very carefully about taking on a partner. What happens if you do not like each other or do not work well together or he does not fulfill his responsibilities? We own a successful business and had many opportunities along the way to give away equity for cash and looking back, we're glad we've said no and own 100% of our business.