How to form an equitable business partnership
November 4, 2009 10:44 PM Subscribe
How to setup a business partnership in an old-school brick-and-mortar manufacturing business between four friends - two of whom will be the major investors (say A and B), one guy is partial investor who will work full time but is new to this business and doing business in general (C ie: me), and the last guy is the one (D) with the entire business knowledge. He is in the field for past 7 years, already running a profitable trading shop (buying in Saudi, selling in India) in this field and is interested in expanding by setting up 'our own' manufacturing facility in Saudi.
posted by forwebsites to Work & Money (10 answers total) 1 user marked this as a favorite
This is my first time venturing into a business setup after quitting my job. Some things which are different than the norm. We don't plan to take any debt. This is an all cash setup we are planning in Saudi and there would be no lawyer involved it's all mutual agreement and trust between us. Treat this as business amongst friends. There are no trust issues and nobody is fighting for the last margincal percentage. All of us are pretty ok with the plan being a bit flexible and we cover each others backs anyways. As long as it 'looks good and fair overall' it's game.
The investment capital ratio is :
A - 45%
B - 45%
C - 10% (ie me)
Entire capital is going to be invested upfront in setting up the business, visas, licence, machinery etc. There is no staggered investment. The only thing variable in the above plan is: B might decide to remain as just investor or investor + working full/half time based on the need.
D having the full business knowledge is going to do the initial work of sourcing raw materials, setting up shop and selling. He is the only one at this point with all contacts, knowledge the works. Apart from my 10% investment, the idea is I (and maybe B) be working full time alongside with him and learn the trade, eventually come to a position 6 months down the line where I (and B) be managing the Saudi shop and he'll concentrate on the selling side in India.
I will be working full time on this. But since I'm new to it, one way to look at this is also that I'm getting an opportunity to learn the trade. Same applies to B if he becomes a working partner.
All the working partners C, D (and B) are okay with not taking a salary for, say first 6 months or so.
How should we divide the stake in this setup between all of us and how much salary (or any other form of compensation - increased stake in lieu of agreeing to not take any salary) should C, D (and maybe B) get?