Ownership/Equity Distribution on Fashion Startup?


1

My Friend (a graphic designer/production manager) is a 33% partner in a manufacturing company with 2 investors (spilt 33% among the 3). Right now they are manufacturing for outside clothing companies.

I am a Fashion Designer, they asked me to create a new graphic t-shirt line with them.

Fashion Designer and Graphic Designer are contributing the ideas, the industry expertise, the ongoing work to build the business, and contacts.

2 Investors are contributing the capital, They own a fabric mill, dye-house and a sewing house. So this is a designers dream come true, everything you need at cost!

Right now the amount they are investing is undetermined as they are willing to pay whatever it takes, while the graphic designer and I are very experienced at getting things done frugally, have very strong work ethic, and are very committed.

I think we could do 15k-20k in sales in the 1st season easy.

They want me to make the 1st offer. I am going to put my heart and soul into this, and will do whatever it takes to make it work. This is such a great opportunity i do not want to blow it. I have no idea what is fair.

My dad advised I ask for salary + a percentage of the sales + ownership that rise on a scale as the sales rise, but I have no idea what this look likes, or if this is sound advise.

Would love your feedback!

Getting Started Salary Distribution

asked Dec 24 '11 at 03:01
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Stacey Jackson
6 points
  • You and the graphic designer (33% owner) may be the vision and work but the other two investors are putting up all the risk. They will likely not want to part on their shares. Is your friend willing to split his/her shares with you? – Maple Shaft 9 years ago
  • Your dad's idea is fine on the first two points, but the 3rd is ridiculous. You are taking no risk at all. You have to be fair to both sides otherwise it will fail/won't get off the ground. – Tim J 8 years ago

1 Answer


1

This is not a short answer I hope they allow all of this to be placed. I would like to know a bit more information. First I see the creative and production side of this venture but what about the other critical component. SALES. It appears the factory wants to make better Margin by having their own collection and not just manufacture for other brands. A good thing in theory but you need to consider the actual team before you invest what could be incredible work on an start-up unprepared to get those goods to market.

You should find out exactly what the long-term goals of the group are and exactly what if any distribution (sales) plans are in place before submitting any kind of offer sheet. You are a designer
so make sure the team around you is complete (committed sales entity) in this case.

Factory financed deals are a dime a dozen but often lead to a lot of great product not making it to the sales floor because the lack of sales and marketing expertise. Been there, done that.
The factory ends up with great samples to show its existing client base which you designed for free if you do not get a salary.

Once you make sure there is a committed structure to getting the PRODUCT to market properly then do the following.

Form a new company. They are already in business and you do not want to have anything legally to do with THAT business. If you are not then you should form an LLC for yourself.

Your LLC and their Legal entity form a new company. ACME T-shirt company for the lack of a better example, to design, manufacture, distribute, ship and collect on your creations.

Here is where money and ownership come into play.

IF YOU WANT A SALARY OR RETAINER then you need to define how you want the money. I generally suggest an up front zero or low-interest LOAN against future profits that will allow you to function as an individual and company. Borrow enough to stay comfortable while you put your heart and soul into getting the collection off the ground. Trust me they will not loan you a penny more than they want to but they will understand you need to survive in order to get the work done. So be reasonable. Offer to accept the loan in monthly installments (6 to 12 months) so that each entity can make sure mile post are being hit in the development of the company, brand and product. This is easier on the pocket and assures that changes can be made if necessary.

Lastly. The split should remain 50/50 of the net profits for the ACME entity. Remember the factory is going to pay itself for making your goods. Generally under its normal profit earning structure. After that they get another 50% of the profits after the cost of selling. If your brand is successful you will have more than enough money to repay the loan and do well for your OWN company.

Hope that helps
forgive any typos, just blazed through the answer.

answered Jan 2 '12 at 15:03
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Coleman
11 points

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