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Business start up question?

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What should be the ownership percentage of a new business between two partners if:

Partner A secures a loan for startup through a business (business 1) he owns 90% of.  Partner A will have significant input in business decisions but little to do with day to day operations.  The new business (business 2) is in a different industry but dependent on his already successful business for success and will be located on land owned by business 1.  After 5 years business 2 will start to pay rent to business 1 for the use of land at a reasonable to discounted rate.

Partner B secures a loan (the same one as Partner A) through business 1 of which he owns 10% of.  Partner B will have significant responsibility in the startup of business 2 and its day to day operations.  Partner B will not be paid an employee salary from business 2 but will continue to draw his same salary and shareholder distributions from business 1 even though most of his time and effort will now go to business 2.  Up until now Partner B had a greater responsibility than Partner A in the day to day operations of business 1 so draws and salaries by Partners A & B from business 1 were equal.


What do you think is a fair split of ownership % for business 2 if nothing changes with business 1?
 
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Posted: #2
Opinions on this?
 
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Posted: #3
Now you are in my wheel house.

Been self employed for 34 years with various businesses. 
Have had a partner in most of my businesses (always 50-50, with 1 exception)
I am currently in an expensive, lengthy legal battle with a business partner, mostly because of a disagreement about fair compensation for one partner working more than the other (I am simplifying, the arduous details are boring)

Regarding your scenario, we need more info.
1) Why is Business 2 dependent on Business 1 for it's success? (very important info)
2) Draws and salaries were equal to both partners from Biz 1. What about profit sharing? I assume Partner B received 10% of profits?
3) Biz 1 owns the land ... that seems odd. I would think the land would be owned by a separate entity, which the owners of Biz 1 also owned. If this is the case, does does Partner B own 10% of that separate entity?
4) Partner B will no longer be running Biz 1. Who will be taking up the slack? Whether it is Partner A or not, this change in structure has a negative effect on Partner A, and should be addressed accordingly. 
5) If Biz 2 fails, is Partner 2's 10% stake in Biz 1 more than enough to subsidize the loan?

To answer your original question ...
With the limited knowledge we have thus far, I would say that Biz 2 ownership should be equal to the monies invested by each partner. Of course, there are quite a few variables to be considered, some of which I just asked questions about. Obviously, your scenario cannot be sufficiently, nor fairly, addressed without more knowledge. 

Asking questions on covers = $0
My business advice = $0
Getting a GOOD attorney to get everything in writing = Priceless 


bigreds daddy
 
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Posted: #4
Centaur,

If you are one of the Partners referenced, once you answer the questions posted, if this should require more details to properly address, I would be more than happy to provide my opinions via email, and or phone. 
This is assuming you would be interested 
bigreds daddy
 
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Posted: #5
Quote Originally Posted by Hugh_Jorgan:

Now you are in my wheel house.

Been self employed for 34 years with various businesses. 
Have had a partner in most of my businesses (always 50-50, with 1 exception)
I am currently in an expensive, lengthy legal battle with a business partner, mostly because of a disagreement about fair compensation for one partner working more than the other (I am simplifying, the arduous details are boring)

Regarding your scenario, we need more info.
1) Why is Business 2 dependent on Business 1 for it's success? (very important info)
2) Draws and salaries were equal to both partners from Biz 1. What about profit sharing? I assume Partner B received 10% of profits?
3) Biz 1 owns the land ... that seems odd. I would think the land would be owned by a separate entity, which the owners of Biz 1 also owned. If this is the case, does does Partner B own 10% of that separate entity?
4) Partner B will no longer be running Biz 1. Who will be taking up the slack? Whether it is Partner A or not, this change in structure has a negative effect on Partner A, and should be addressed accordingly. 
5) If Biz 2 fails, is Partner 2's 10% stake in Biz 1 more than enough to subsidize the loan?

To answer your original question ...
With the limited knowledge we have thus far, I would say that Biz 2 ownership should be equal to the monies invested by each partner. Of course, there are quite a few variables to be considered, some of which I just asked questions about. Obviously, your scenario cannot be sufficiently, nor fairly, addressed without more knowledge. 

Asking questions on covers = $0
My business advice = $0
Getting a GOOD attorney to get everything in writing = Priceless 



I will try to sufficiently answer your questions by the number you gave them:

1)The dependency is analogous to say a hotel next to a theme park, or a restaurant next to a shopping mall.

2)Even though ownership % in Bus.1 is 90/10, earnings were distributed 50/50 through regular w-2 wages because of partner B's higher activity in the business, avoiding shareholder distributions altogether.

3)The land is part of the undivided piece of land which was originally purchased by business 1 but was unused.  I realize that may be atypical but that's the arrangement.  Partner B owns a different % of business 2 than business 1 which may be the reason for business 2 not purchasing the land from business 1.

4)Once business 2 was up and running Partner B's activity in business 2 decreased and leveled off and his activity proportionately increased back to business 1.  However his compensation from business 1 remained the same throughout.  Extra money by business 1 has been used to pay for business 1 employees to replace Partner B's reduction in activity due to business 2 and his age.  Partner B has been working at business 1 since it's inception, but never made a financial investment in the business, and inherited the 10%

5)This is a good question and a big part of the issue.  It is my understanding that if business 2 were to fail, business 1 would be liable for payments on the loan.  I do not know what would happen to Partner B's salary from business 1 in that case, and I don't think that was outlined before starting business 2.  It was a sizeable loan, and surrender of 10% of business 1 would not be sufficient.

If it makes things clearer, I am neither partner A or B, but I am an interested party.
 
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Posted: #6
Quote Originally Posted by thecentaur:


I will try to sufficiently answer your questions by the number you gave them:

1)The dependency is analogous to say a hotel next to a theme park, or a restaurant next to a shopping mall.

2)Even though ownership % in Bus.1 is 90/10, earnings were distributed 50/50 through regular w-2 wages because of partner B's higher activity in the business, avoiding shareholder distributions altogether.

3)The land is part of the undivided piece of land which was originally purchased by business 1 but was unused.  I realize that may be atypical but that's the arrangement.  Partner B owns a different % of business 2 than business 1 which may be the reason for business 2 not purchasing the land from business 1.

4)Once business 2 was up and running Partner B's activity in business 2 decreased and leveled off and his activity proportionately increased back to business 1.  However his compensation from business 1 remained the same throughout.  Extra money by business 1 has been used to pay for business 1 employees to replace Partner B's reduction in activity due to business 2 and his age.  Partner B has been working at business 1 since it's inception, but never made a financial investment in the business, and inherited the 10%

5)This is a good question and a big part of the issue.  It is my understanding that if business 2 were to fail, business 1 would be liable for payments on the loan.  I do not know what would happen to Partner B's salary from business 1 in that case, and I don't think that was outlined before starting business 2.  It was a sizeable loan, and surrender of 10% of business 1 would not be sufficient.

If it makes things clearer, I am neither partner A or B, but I am an interested party.

Brokeass gonna brokeass lol
 
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Posted: #7
Quote Originally Posted by bankerplayertie:


Brokeass gonna brokeass lol


 Me         BankerPlayerTroll
         

Hey dumbass, go back to SBR where you can cry and complain to that idiot mod-ette
 
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Posted: #8
With the info we have thus far, there is no definitive correct answer.

Problem with your scenario is it has multiple parts which are all separate, yet somehow all tied together.
We don't know risk factors.
We don't know loss exposure should Biz #2 fail.
Still so much we don't know ... but, that won't stop me from making an argument as to why a certain percentage would be fair.

I will digest the available info tomorrow and give my opinion 



bigreds daddy
 
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Posted: #9
Quote Originally Posted by Hugh_Jorgan:

With the info we have thus far, there is no definitive correct answer.

Problem with your scenario is it has multiple parts which are all separate, yet somehow all tied together.
We don't know risk factors.
We don't know loss exposure should Biz #2 fail.
Still so much we don't know ... but, that won't stop me from making an argument as to why a certain percentage would be fair.

I will digest the available info tomorrow and give my opinion 




This isn't a future scenario, it has already happened.  I am trying to support or not support my own strong opinion on what has happened, so if you need other specifics I can try to answer
 
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Posted: #10
Quote Originally Posted by thecentaur:



 Me         BankerPlayerTroll
         

Hey dumbass, go back to SBR where you can cry and complain to that idiot mod-ette

Hey, don't be talking like you got cash, cuz we all know trolling covers is what you're doin all day in your mommy's basement 
 
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Posted: #11
Quote Originally Posted by bankerplayertie:


Hey, don't be talking like you got cash, cuz we all know trolling covers is what you're doin all day in your mommy's basement 

Whatever you need to tell yourself dude

Exposed this guy and his bet ticket posts from the beginning so now he needs to follow me around for some kind of trolling revenge, it's sad really
 
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Posted: #12
the interest you want is partner b partner a is useless in the present situation. 10 % of a a bankruptcy loan is as useless as confederate money. 

partner a is employee with profit sharing that is reality partner b is the money man and the owner and right now responsible for it all 

but the whole thing sounds like a money pit trap good investment put a lot in 'dere but very poor return. 

just my 2 cents.
 
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Posted: #13
Quote Originally Posted by nature1970:

the interest you want is partner b partner a is useless in the present situation. 10 % of a a bankruptcy loan is as useless as confederate money. 

partner a is employee with profit sharing that is reality partner b is the money man and the owner and right now responsible for it all 

but the whole thing sounds like a money pit trap good investment put a lot in 'dere but very poor return. 

just my 2 cents.

DO you have the partners switched?
 
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Posted: #14
yes sorry had a couple bets in horses going. 5/16/all paid 50. lost the big supr. hit a smaller .10 5/16/all/all for 75. so recouped my losses made 22. over the weekend at los almitos last race. 

any way yes a money position who has all control b is the employee with profit sharing interest but he has do all the work for his 50% hence the buisness is his work. 

a is the position to buy for it gives the stake and allows for little hands on involvement where b is chained to a buisness and is a glorified employee unless the buisness is sold where he get 10% after debts were cleared.he actually never own anything more and partner a can will his interest to a heir. b still has to work for his or find someone to fill his roll with less than he was making.
 
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I actually put some thought and effort into this, so much so that I asked the opinion of someone whose business acumen is more than impressive. 
My answer, as well as his, is there are too many unknowns to give 'good' advice. But I will give a partially educated opinion anyway.

The best I can guess is that Partner B should own approx 12 - 15% of Biz 2.

Partner A brings to the table;
1) Gave Partner B his 10% stake in Biz 1. This gift is what allowed Partner B to secure a loan which he then used for a stake in the new Biz.
2) Gave Biz 2 free land use for 5 years, then a discounted rent afterwards. The value of easing overhead of any new Biz can not be stressed enough. This carries great value.
3) Biz 2 relies upon Biz 1, which Partner A owns 90% of, for it's success. Thus, Partner A's assets have more to do with the success of Biz 2's than Partner B's does.
4) Profit of Biz 1 was negatively effected by Partner 2's absence. 

Partner B brings to the table;
1) Half the startup costs (maybe)

Partner B running Biz 2 has no value, because he is not necessarily working additional hours, he is still making the same weekly money as previously, and he is being compensated by Biz 1, of which he only owns 10%. The 90% owner is negatively effected by this every week that Biz 1 continues to pay Partner B plus his replacement.

What happens if additional funds need to be invested in Biz 2?
There is potential that Partner 2's 10% stake in Biz 1 would not be enough to cover the debt should Biz 2 fail. This is troublesome.
If I read you correctly, the Partners received a loan to Biz 1, and Biz 1 used the loan to start Biz 2. Is this correct? If so, the loan itself goes under Partner A's side of the ledger as to who is bringing what to the table. 

The details of the loan, and a better understanding of personal responsibilities should that loan default, would be needed in order to give a quality opinion. For now, 12-15% is what I'd assume to be fair ownership.

I could possibly make an argument that Partner 2 should receive a greater %, but the fact that he was gifted what he used to secure the loan for the new Biz weighs on my opinion.

Hopefully, my opinions inspire some thought for those involved 
bigreds daddy
 
 
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Posted: #16
Quote Originally Posted by Hugh_Jorgan:

I actually put some thought and effort into this, so much so that I asked the opinion of someone whose business acumen is more than impressive. 
My answer, as well as his, is there are too many unknowns to give 'good' advice. But I will give a partially educated opinion anyway.

The best I can guess is that Partner B should own approx 12 - 15% of Biz 2.

Partner A brings to the table;
1) Gave Partner B his 10% stake in Biz 1. This gift is what allowed Partner B to secure a loan which he then used for a stake in the new Biz.
2) Gave Biz 2 free land use for 5 years, then a discounted rent afterwards. The value of easing overhead of any new Biz can not be stressed enough. This carries great value.
3) Biz 2 relies upon Biz 1, which Partner A owns 90% of, for it's success. Thus, Partner A's assets have more to do with the success of Biz 2's than Partner B's does.
4) Profit of Biz 1 was negatively effected by Partner 2's absence. 

Partner B brings to the table;
1) Half the startup costs (maybe)

Partner B running Biz 2 has no value, because he is not necessarily working additional hours, he is still making the same weekly money as previously, and he is being compensated by Biz 1, of which he only owns 10%. The 90% owner is negatively effected by this every week that Biz 1 continues to pay Partner B plus his replacement.

What happens if additional funds need to be invested in Biz 2?
There is potential that Partner 2's 10% stake in Biz 1 would not be enough to cover the debt should Biz 2 fail. This is troublesome.
If I read you correctly, the Partners received a loan to Biz 1, and Biz 1 used the loan to start Biz 2. Is this correct? If so, the loan itself goes under Partner A's side of the ledger as to who is bringing what to the table. 

The details of the loan, and a better understanding of personal responsibilities should that loan default, would be needed in order to give a quality opinion. For now, 12-15% is what I'd assume to be fair ownership.

I could possibly make an argument that Partner 2 should receive a greater %, but the fact that he was gifted what he used to secure the loan for the new Biz weighs on my opinion.

Hopefully, my opinions inspire some thought for those involved 

Appreciate your input

I'm sorry there is so much missing information, as there is some info i don't know.  I will try to clear some things up further

1)Partner B didn't secure the loan.  Business 1 co signed  the loan, so it was on the hook in the event the business failed or was not profitable enough to pay. 

2)Agreed

3)Agreed

4)Business 1 was negatively affected from Partner B's absence in that other employees had to take over those responsibilities.  As far as I know there were minimal to no actual reductions in profits because of it.

Partner B brought his time, effort, and 10% ownership of Business 1 that co signed the loan.  He made no monetary contribution but is above average in skill and motivation

I understand how important the details of the loan are and unfortunately don't have the specifics.  I guess the main question being asked here is how valuable is labor investment which takes no risk compared to monetary investment?


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