How would you structure a partnership?
Hey guys.
Hope I posted it into the correct forum category.
I just received an interesting offer to help in a small IT firm. The idea is that I will help running the firm and launch new managed services and in exchange I will be a partner. The firm right now has two partners - the founder and the dude who is currently running the operations.
All partners already agreed on basically giving me heads up. The only real question is how are we going to structure the deal? Right now the talk is about giving me 15% of the firm. But at the same time owner of the firm wants to keep veto-right and a priority dividend. I'm fine with all this terms.
The only question is how to structure everything else? Right now we think that my salary should be based on a percentage of the new services we will provide (the ones I will launch). But we also discussed that the more of those services we will provide and the more the firm will grow, the more % of the partnership I will get (I would love to set KPIs here and put in agreement that when they are reached my % of the partnership will get bigger).
The only problem is that I have no idea how to put it into writing. How would you do that?
You should find a good lawyer to ask about this. He or she will know what's reasonable and how you'll want to word things in the contract, and you'll need someone to look over any partnership agreement before you sign anyways.
You need an attorney ASAP. Think about what they are saying: "Priority Distributions" is a fancy way of saying, "I want to make sure I can take money out, but you might be SOL." Veto Right basically means you aren't getting any voting power at all.
So they have taken away your right to get money out of the company as well as have a say on anything they decide to do as a company. Doesn't sound like a partner I'd want to have!
It sounds like these guys are getting themselves a salesman and instead of paying you actual money they are giving you commission on your sales without any ability to access the profit you are earning for the company you own.
This is exactly what I was going to say. Keep in mind that partnerships are extremely flexible, lawyers will know how to write the language into the partnership agreement to achieve your desired objective.
Since you're going to be a partner, make sure you have somebody look over their LPA/Governing Document (goes without saying).
Unfortunately this type of Fake Partnership is really common. You are called a partner, but really don't get any of the benefits of being the partner. What a shame.
Among other things, you want to understand how dilution works as more investors join in in subsequent rounds. It is usually inevitable that all existing partners will see their percentages diminished with new share issuances but you want to make sure that the dilution is applied equally to all the partners. This way you avoid ending up like Eduard Saverin of the Facebook situation.
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