My brother had an idea for a business and asked me to be his partner. His idea was for me to have 20% ownership and he has 80%. He is going to fund the business (at most $20,000) and believes that I should never be paid for my time starting and running the business by myself, even when it becomes profitable, but that all monies he puts in are to be repaid first before any draws can be taken.
He thinks it is unfair for me to receive a salary, but I am supposed to do all start-up of his idea and then run and manage the entire operation.
Is it fair that the $20,000 be paid back given his extra percentage of the business?
I've read things like if you're not 50/50 you are working for the other. We are still in the negotiating stage. When I heard the word partners I had imagined a 50 50 split with his 20,000 investment and my sweat equity until the business turned a profit. I was willing to pay back the 20,000 with a 50/50 split, but I am still taken aback by his plans for me. Because he is my brother I find myself not fighting for myself, like in the days when we were teens and I'd work his paid handyman jobs for free to help him in life.
Is this a loan or an investment?
If it's a loan, then having to pay him back soon (not necessarily first) makes sense.. but then he shouldn't own a chunk of the company, especially not 80%.
If this is an investment, then owning a chunk makes sense, but it seems his interest should be to make the company successful as soon as possible. Taking $20k out of it this early on is going to make things way more difficult for you and the company.
Either way, if he doesn't expect you to be compensated, that's something else entirely.. and completely wrong. It doesn't mean you should have a huge salary but taking something out to keep you afloat is perfectly reasonable. Just make sure you know how much you income you need to live.
If the deal is currently as you describe, this just feels bad.. it's pretty onerous and if he's making demands like this before he's given you the money, the demands are only going to get bigger once he does.
I would assume, by you putting in your time to manage and grow a startup that you would be compensated for your work. Especially if your share of the company is only 20%. Depending on your return and the rate at which you receive your return, I would want both investments paid in a balanced way. Ex. If $1 comes in then $.20 goes to you and $.80 to your brother. *Obviously taking into account of other budgets which will be essential to your success.
If it we're me; I would not have a huge problem with this partnership with more equity in the company. I would at least want 40-45% of the company or my investment be paid back in balance with the other investor a.k.a. Your brother. Working for nothing in a startup is part of the game depending on some variables. Most important question is; What are you comfortable working for?
Hope I helped in some way.
I would suggest you split all money that is generated by 3. So 1/3 toward you for your investment, 1/3 towards your brothers investment and 1/3 towards the companies account for marketing or any other growth needed.