Which structure should I use

[dx4100]

Hi All

I have been approached with a e-business idea that might work. He has no technical skills and its something I could setup with my eyes closed.

The proposal is I build the site and he runs it day to day. 50/50 split. I am fine with this as I need something to fill my time at the moment and a side project will do nicely.

The question comes on which model of partnership to use. To be frank I don't want to get into bed with this guy too much. He is self employed and I have my own LTD. I don't think he is the sort to pay and declare everything he should.

My thought was my LTD will build, host and maintain the site (from a server point of view) and the cost for doing this would be 50% of everything earn't through the site. He would run the site and be legally responsible for everything to do with it and get on with trying to increase revenue. Obviously will need a contract stating this between the two parties.

Would it be fine for me to automatically transfer 50% of the revenue to my bank account or would I need to invoice him each month for 50% of the revenue ? Or can I take all the money and give him his share back (tax issues?) ?

Cheers for any advice and sorry if its a bit of noob question.

[tomtomagain]

My advice is never split 50/50. Someone needs to be in charge.

Also I am usually very dubious of someone who says "You do all the hard work of setting it up ". Even if it is something you think you can do easily ... easy does not mean "not a lot of work".


Make a list of the tasks that you will do and then make a list of the tasks that they will do and ensure that they are committed to putting in the hundreds of hours that you will need to put in to get the business off the ground.


As far as structure goes. I use my LTD for all my business ( consulting and product sales ) it's simple and I only have a single accountancy bill.

[tomtomagain]

Hi All

Would it be fine for me to automatically transfer 50% of the revenue to my bank account or would I need to invoice him each month for 50% of the revenue ? Or can I take all the money and give him his share back (tax issues?) ?

Well if you are going to take 50% of the revenue each month then unless you've got margins of over 50% then the company is not going to stay in business for long.

If you take 50% of the profits each month you'll cripple the growth prospects. New, growing companies don't make profits.

You cannot just put money into your company account without explaining it. So you would need to either invoice ( with VAT added ) or I think you could own part of his company and receive a dividend ( an accountant would have to advise you ).

However : If you are going to start a business together be in business together. Have a single entity and run it as a business. With one of you the senior partner. Otherwise you can easily run into trouble.

Do not estimate the effort in establishing a company. It's not just a case of creating a website and sitting back and watching the money roll in. It will take every hour that you have. And more.

And the problem with your current model is that you do loads of work up front .... then you are relying on the other person to be committed to get you a return. If you don't make any sales for the first 3 months will she give up?

If she doesn't give up and works really hard and start establishing an income stream is she going to be happy to hand over 50% of the profits to someone who is effectively "rent seeking"? Maybe for the first few months but forever?


Not being negative. Just realistic. Setting up my own company was the best thing I ever did.

[DaveB]

You may find this instructive

Hugh Fennyman: How much is that, Mr Frees?
Frees: Twenty pounds to the penny, Mr. Fennyman.
Hugh Fennyman: Correct.
Philip Henslowe: But I have to pay the actors and the author.
Hugh Fennyman: Share of the profits.
Philip Henslowe: There's never any.
Hugh Fennyman: Of course not.
Philip Henslowe: Oh, oh, Mr. Fennyman. I think you might have hit upon something.

[dx4100]

I will invoice him from my own company on a monthly basis.

As far as the business of splitting 50/50 goes I can see all your points. He is going to be the senior one. I don't want any involvement outside of developing the site for him. I have other things to concern myself with.

I need to think of a structure that allows him to make money and keep going but also recognise I did the work initially.

I owe the guy a favour. If its all just a lot of wasted effort then its not going to end my world

Cheers for all the feedback!

[tomtomagain]

I did something similar to create on of my products.

A good friend was available to do the initial development which he did with me, at a much reduced rate, we also agreed that he would be paid a %age of sales up to a certain level and then tailed it off.

It worked for us, I got a product, he got money and the risk for both was reduced. But better still it didn't end in tears and we are still good friends.

The key is to be upfront and clear about the commercial arrangements.

[tomtomagain]

You may find this instructive

Isn't it funny/How films never make any money/When everyone in the racket/Cleans up a packet

[jmo21]

I will invoice him from my own company on a monthly basis.

All well and good, but the reason he offered you equity is because he has no money to pay you right now.

And if the business does not take off, he will have no money to pay you later either.

[tractor]

...

Hi All

I have been approached with a e-business idea that might work. He has no technical skills and its something I could setup with my eyes closed.

The proposal is I build the site and he runs it day to day. 50/50 split. I am fine with this as I need something to fill my time at the moment and a side project will do nicely.

The question comes on which model of partnership to use. To be frank I don't want to get into bed with this guy too much. He is self employed and I have my own LTD. I don't think he is the sort to pay and declare everything he should.

My thought was my LTD will build, host and maintain the site (from a server point of view) and the cost for doing this would be 50% of everything earn't through the site. He would run the site and be legally responsible for everything to do with it and get on with trying to increase revenue. Obviously will need a contract stating this between the two parties.

Would it be fine for me to automatically transfer 50% of the revenue to my bank account or would I need to invoice him each month for 50% of the revenue ? Or can I take all the money and give him his share back (tax issues?) ?

Cheers for any advice and sorry if its a bit of noob question.

I think you have answered your own question with the emboldened parts above. I would walk away. Especially as you have already said that although he would be responsible, you don't think he actually will.

[dx4100]

All well and good, but the reason he offered you equity is because he has no money to pay you right now.

And if the business does not take off, he will have no money to pay you later either.

I understand that...