Need Structure for Adding a Partner

[sheri858]

We have an established handyman business that is growing faster than we can accomodate. We would like to bring a licensed contractor in and structure a deal that would let that person earn their way into a piece of the company. Any suggestions for how we structure something like that? Here are some of our questiosn:
1. How long should the person work for us before they are eligible for ownership?
2. Do we established a benchmark now based on current revenues and then tie ownership percentage to how much he makes the business grow?
3. How do we set it up so that we can part ways easily if it doesn't work out?
Any advice is greatly appreciated...thanks so much!!!

[akula]

wrong document

this is not a partnerships situation

a partnership deed is a document which determines profit splitting ratios, and assigned liability for partnership debts

the document you have in mind relates to remuneration. it's called a vesting schedule

sheri858, put the contractor on a vesting schedule

you can also use call options to link remuneration to performance

grant him call options

this way, he will have incentive to work hard so the price per share of the company (product of retained earnings) is significantly higher than the strike price....but this may not be a good strategy because the stock is illiquid.

anyway - bugger it. it's all crap. stop giving away your company like it's candy. equity is not a toy. just pay people. and if you can't pay them, take trade credit.

I look very dimly on entrepreneurs who are negligent with their cap tables. if you cut these people into the company, you are setting your self up for headaches, lost opportunities and failure

[akula]

We have an established handyman business that is growing faster than we can accomodate. We would like to bring a licensed contractor in and structure a deal that would let that person earn their way into a piece of the company. Any suggestions for how we structure something like that? Here are some of our questiosn:
1. How long should the person work for us before they are eligible for ownership?
2. Do we established a benchmark now based on current revenues and then tie ownership percentage to how much he makes the business grow?
3. How do we set it up so that we can part ways easily if it doesn't work out?
Any advice is greatly appreciated...thanks so much!!!

1. the custom is 12-24 months for entry level positions, which significantly shortens with c-level roles

2. by putting such a term in the vesting schedule

3. no, not really..unless you put in a "mexican stand off" provision, which provides that if you make a buy out offer, the contractor has to either accept or buy you out instead....which is hardly an easy way to part company

it's very difficult to part company with a shareholder

even if you have different classes of shares in your cap table, they're still a shareholder, and they have rights. one of these rights (it's got a legal name which I can't remember right now) is that you can't just invalidate some one's shares just because you want to part company.

you're gonna have to buy them out, and they're gonna argue with you about price.