advice for clothing line startup


1

50,000 usd as an investor. They will have no roles in the company as far as management anything else. I will be doing all the leg work. I have the copyrights and trademark for the logo and name of the company. The business plan is also completed. I was thinking on giving up 10% of sales profit for maybe five years. The investor wants to gradually see a return on the investment and dosen't expect to see it over night.

Equity

asked Aug 13 '11 at 00:14
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Bronson
6 points
  • Please do not post multiple post with the same question. Just edit you original post. – Ross 9 years ago
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1 Answer


2

A percentage of sales has nothing to do with equity.

With equity, the invester buys a certain number of shares with his/her investment. Once they own these shares they are cast in with the other share holders and receive payments (dividends) at the end of the companies accounting year that correspond to the number of shares they own.

If $50K buys them 50,000 shares and there is a total of 100,000 shares then they own 1/2 the business. If there are 200,000 total shares then they own 25% of the business.

If your company has $100,000 after all expenses and taxes (net earnings) this is paid as a dividend to the share holders so your investor would get $50,000 if there were 100,000 shares or $25,000 if there were 200,000 shares.

If the investor wants you to pay them back based on a percentage of your sales then they are really loaning you the money AND taking stock. All investors want to get their money back PLUS some profit (usually 2-3 times their investment) so how you do that is up to you but there needs to be a cap.

answered Aug 17 '11 at 00:59
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Pete
29 points

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