Hello,
I am in discussions with a potential partner ("PARTNER") to buy an existing business. I am looking to transition out of my career in finance and am drawn to the idea of owning a company. PARTNER is financially very well off and is looking to diversify his assets. I wanted to hear suggestions on how this arrangement should be structured. Below is a list of the "things" that each of us brings to the table followed by list of a few questions. Any other observations are always welcomed.
What I bring:
career professional, former lawyer, career in finance, willingness to take smaller salary in order to buy a business and gain operating experience. My potential partner and I have a long history and therefore he knows that I am someone he can trust. I will be contributing about 10% of equity required for purchase of business. After a "transition" period during which I learn the business, I will manage operations on a daily basis.
What PARTNER brings:
MONEY and experience. He had a successful career in private equity. He will contribute 90% of equity needed to purchase company.
QUESTIONS:
1. How should this be structured as a legal matter. Should we form a partnership or LLC, where we will define the arrangement between us (equity splits, salary, control issues, etc) and the LLC would be the sole shareholder of the purchased business. OR should be both be parties to the purchase agreement, and simply have a shareholder agreement between us on the side.
2. Based on facts given above, what is a "fair" equity split. As a reminder, PARTNER is fronting 90% of upfront capital; I am contributing the remaining 10% as well as agreeing to work for a small salary while I "learn" the business. I will be in charge of day to day operations and PARTNER is financial partner only. He is located 1000s of miles away.
3. Are there ways to structure arrangement where my equity builds over time, as I gain experience and maybe hit some pre-set milestones?
4. What are the MAJOR other issues that we need to consider now before proceeding.
THANKS A BUNCH to whoever made it this far. Any thought you have to share is appreciated
- George
I am in discussions with a potential partner ("PARTNER") to buy an existing business. I am looking to transition out of my career in finance and am drawn to the idea of owning a company. PARTNER is financially very well off and is looking to diversify his assets. I wanted to hear suggestions on how this arrangement should be structured. Below is a list of the "things" that each of us brings to the table followed by list of a few questions. Any other observations are always welcomed.
What I bring:
career professional, former lawyer, career in finance, willingness to take smaller salary in order to buy a business and gain operating experience. My potential partner and I have a long history and therefore he knows that I am someone he can trust. I will be contributing about 10% of equity required for purchase of business. After a "transition" period during which I learn the business, I will manage operations on a daily basis.
What PARTNER brings:
MONEY and experience. He had a successful career in private equity. He will contribute 90% of equity needed to purchase company.
QUESTIONS:
1. How should this be structured as a legal matter. Should we form a partnership or LLC, where we will define the arrangement between us (equity splits, salary, control issues, etc) and the LLC would be the sole shareholder of the purchased business. OR should be both be parties to the purchase agreement, and simply have a shareholder agreement between us on the side.
2. Based on facts given above, what is a "fair" equity split. As a reminder, PARTNER is fronting 90% of upfront capital; I am contributing the remaining 10% as well as agreeing to work for a small salary while I "learn" the business. I will be in charge of day to day operations and PARTNER is financial partner only. He is located 1000s of miles away.
3. Are there ways to structure arrangement where my equity builds over time, as I gain experience and maybe hit some pre-set milestones?
4. What are the MAJOR other issues that we need to consider now before proceeding.
THANKS A BUNCH to whoever made it this far. Any thought you have to share is appreciated
- George
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