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MenuStarting a video production company with one partner, need advice on the equity split.
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Hey there! This doesn't seem to meet the definition of a partnership, especially if all of the funding is coming from you. You certainly want to demonstrate that you value his expertise and contributions but it really sounds like you are bringing your first employee (if you are based in the U.S. learn more about how the IRS designated independent contractors from employees here http://bit.ly/IRScontractorvsemployee). Without having many other details, my suggestion is that you connect with your local economic development council or workforce council to prepare yourself for becoming an employer. Your discussions will change from percentage to salary. You might also consider developing an operating agreement for commission-based compensation on any sales that he brings in.
I really hope this helps!
First, I answer a lot of "what can go wrong' here:
http://mixergy.com/interviews/chris-johnson-simplifilm/
Second, make sure someone has the right to remove someone else at a pre-negotiated fee and term.
Also, reach out - happy to talk.
Good Question! I have seen this situation on more than one occasion. The thing to understand here is that there is more than one type of equity and you two need to come to an agreement as to how these types of equity will be valued in your partnership. The first type is what you are bringing to the table CASH. This one is simple and easy to understand. Cash will be the fuel and life blood of the business. Without it there is no business. Your partner is bringing two kinds of equity; SWEAT equity and CUSTOMER equity. Remember that know-how and a client base are very valuable, and the business cannot grow (i.e. make more CASH) if you don't have know-how and customers. When partners do not come to an agreement up front as to how much they value each others contributions, disaster is always on the horizon. The best way to do this is to set up an legal operating agreement (formalizing the arrangement) and a business plan (which sets the both of you on the same page). I could start this process for you easily on a call. Best of luck.
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