If a new partner is going to buy into our business, should he give us the money as shareholders or should he invest the money into the business?

This sounds as a deja vu to me. I have been in a similar situation back in 2000, we could only solve the issue thanks to a good mediator. However every situation is different and hence your route to a solution might be different. It also depends where you are in the world that defines how an email and/or verbal agreement might be a sufficient ground for legal actions. I am not a lawyer and can not judge that.

You should always give someone what they deserve. Never more and never less. Most people don't know how to do this so they guess. They try to predict the future or they look for rules of thumb or they try other ways of guessing. Kind of like you are doing now. The best way to determine this is to consider one person's risk relative to others. When someone contributes to a startup company and doesn't get paid they are accepting risk. The value of that risk is equal to the fair market value of the contribution they made. For instance, if you could earn $100,000 a year doing whatever it is that you do and you do it for a startup without getting paid you are, in effect, risking $100,000 a year. Taking risk in a startup company is essentially betting on the future outcome of the startup. If you and I bet $10 on the same hand of Blackjack we are each betting the same amount and, therefore, each deserve exactly half the winnings (if any). So, the right way to split equity in a startup company is to keep track of what's been contributed, then perform this simple formula: Individual Ownership (%) = Individual Risk/Cumulative Risk The model changes over time as more contributions are made. Each day a person contribute their stake would change. This means that at any given time, no matter what changes, who joins or who leaves. Everyone always has exactly the ownership they deserve to have. Unlike traditional models that require us to predict the future, the relative risk model is based on easily observable values in the market. Everything has a fair market value. So, the answer to your question is simple. Add up the risk he has taken and divided it by all the risk taken by everyone (including you). Each person's share can be calculated this way and the total will always equal 100%. On day one, before he's done anything, his ownership will be 0%. As it should be. Over time, as he risks, his % will change based on relative risk. This is a perfect, unambiguous formula. Every other equity model lays the foundation for disputes later on. Only a relative risk model will give you the fair answer. I've written a book on this topic, called Slicing Pie, you may have a copy if you contact me through Clarity.fm or SlicingPie.com.

The first matter for you to conclude is to agree the terms of a shareholder agreement between the two founders. This shareholders agreement should govern the management of all significant governance matters. Without this you will subject to the constitution documents of the company and local company company law. This is a standard type of agreement that any decent corporate lawyer will be able to advise you on. As the voting shares are held equally, then no major changes will be able to be made without both founders agreeing to the changes. The non-voting shares (assuming all other terms are the same) will have equal rights to financial returns (dividends and liquidation rights), but will not be able to participate in voting issues. In simple terms, you will have an equal say in the running of the company with your co-founder, but will receive 25% of the returns, while they receive 75%.

I've been a commercial real estate broker for 5 years now and have ventured into a handful of business partnerships - some have worked and some have nearly ruined me. What I find, on a surface level, is that you must absolutely share the same VALUES and MISSION as your potential partner. Having even stake in the game also helps, as it avoids one partner eventually grabbing "the upper hand". If you are not bringing cash or equity to the table, be prepared to demonstrate how your hard work can be translated into $ value. If you have more detailed scenarios or questions, feel free to bounce them off me at anytime. Cheers! -S.

If you are really investing in a strategic partner (one that will provide mutual benefit in the end, either in terms of revenues, access to financing or other resources) then revenue sharing isn't absolutely necessary. In the partnerships I help to form, they are often around shared value (http://www.fsg.org/OurApproach/WhatisSharedValue.aspx) which means shared revenue isn't the absolute aim. What is the aim, however, is sharing information, knowledge, technical assistance, operational help, etc) and build a lasting framework for engagement together into the future that will benefit both parties. I am happy to help you negotiate these types of partnerships (it's what I do!) so feel free to get in touch.