Best form of business for partner with conditional ownership?


1

Currently, I have an s-corp and I am the only member of the entire corporation. However, I will soon be bringing on a partner on board. Now, say my company sells 10 products. When I bring my partner in, I want him to only have a 50% share of the profits of one single product, and 0% share in any other products. What kind of business structure would best accomodate that? An LLC or an s-corp? Should his share be distributed as a salary, or as a revenue share? Also, any expenses or costs he pays are only associated with that single product, and not any other products. It is a tricky situation, but I'm sure I'm not the only one to come across a problem like this, and I'm sure there is a nice solution out there somewhere. What do you suggest?

Business Model Partnerships

asked Apr 18 '11 at 00:34
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Maq
197 points

1 Answer


2

As stated on many questions: I'm not a lawyer and you should absolutely talk to one in order to draw up the actual agreements, especially given the trickiness of this situation. A little expense and extra time up front will likely save you a lot of headaches later on.

So, with that said.... My gut would be that the best structure would be to bring him on as a consultant (and pay him a revenue share as a contractor) with the exact terms laid out in a Letter of Agreement (LOA) that states exactly what expenses he is responsible for, what revenue he gets and, most importantly, HOW those numbers are determined.

The trickiest point is the fact that you have this whole exisiting business but he is only getting a cut of the profits of one product. How do you determine what the profits are? Does it count only the marginal cost, or does it also factor in 10% of the company's overhead (since it is one of 10 products. You need to make sure that kind of thing is worked out and understood between the two of you and then documented in the LOA.

answered Apr 22 '11 at 03:35
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Alex Miller
632 points

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Business Model Partnerships