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  • Aug 27th, 2014 2:04 pm
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[OP]
Sr. Member
Apr 8, 2006
966 posts
138 upvotes

51/49 Partnership Advice

Going into business with a partner.

It is a trucking/transport company. He will be putting in the capital to purchase trucks, and I will be managing and generating business. Each truck is about 80k and is leased.

So basically I will be putting in sweat equity and getting contracts. Also will be driving trucks in the beginning until we are able to hire drivers.

Having him provide the capital is it a fair deal to give him the 51% share. And what should I look out for in terms of protecting my 49%. He is having his lawyer draw up the contract and some of the things we discussed is that there will be a no compete clause where I can't go an open a competing company.

I will have a lawyer read over the contract but just wanted some ideas. Also in terms of paying his investment back. Would it be just to take out a set percentage every quarter to pay back his initial investment or the extra 2 percent and voting power should be enough to cover his initial investment.

Also in terms of actual labour. Say one decided to go on vacation for a few months, it won't be fair for the other partner to work his ass off and still make the same amount, I am assuming this is where salaries go in place?

Thanks in advance.
6 replies
Sr. Member
Dec 8, 2003
916 posts
7 upvotes
So many issues I don't know where to begin. Here is just a few of the issues:
1) on the "fairness" of 51/49...only yoU can answer that but generally speaking capital doesn't grow on trees so I am surprised your partner is willing to settle for such a small stake. This in itself is a red flag because it implies there is either something he's not telling you or details you are skipping here. Sweat equity ain't worth 49 percent - at least not in a business which doesn't require a great degree of specialization.

2) is it equity or a loan? If it's equity then why are you required to pay it back, never mind the interest? If the business has some net income then dividends can be paid in the proportion of ownership or perhaps he can get some additional dividends for a period of time to respect the additional original equity.

3) vacation time - that's sort of irrelevant relative to equity. If both of you will be employees of the company than set it out in your employment agreements.

In general what is your partner adding that you don't have? If it is just capital than why not see if you could qualify for the truck leases.

If you do decide to go through with it at least make sure you add some unanimous consent items which means that even though you are a 49 percent partner some items require both your consent. Some of these could be takeover offers, dividend policies, etc.
Sr. Member
User avatar
Feb 12, 2013
822 posts
89 upvotes
Is your partner taking in a salary? Opportunity cost.. Is one of your quitting your job and the other one isn't? What are both of your roles? Sounds like he's mainly an investor, cash founders do get a larger majority of ownership. How much is this initial investment worth in terms of your valuation?
Newbie
Jul 23, 2014
37 posts
5 upvotes
Toronto, ON
as ptxpress rightly says- no one gives 49% sweat equity- Are you going to be an active partner and him a sleeping partner? Ensure you get a working partners wage if this is the case- as this is one of the most common reason partnerships fail as they are never discussed in the beginning.

All I can assume since there is a no compete clause( ensure this is set for a specific period of time- eg 3 months after leaving the firm) It may be that you are essential for the success as you may be managing some good accounts( i mean account management not accounting) and are capable of closing more deals/ sales which is pivotal. What are you adding on an ongoing basis and is there a value placed on this.

Other consideration:
If working capital is required, do you have the means to provide this if your LOC is exhausted. Example if not treated as a Directors Loan- how will equity be diluted.

There of course is plenty more to be discussed after looking through the arrangement or agreement draft.

You really need to see a lawyer who can walk you through the risks and consider the proposal before you sign the paperwork.
[OP]
Sr. Member
Apr 8, 2006
966 posts
138 upvotes
We do have a weird relationship, he is my wife's ex husband, and I am his son's stepdad. We have worked on a few small ventures in the past where I provided him with some marketing and web design as well as general business consulting.

I have been working in the corporate world since I graduate university and after a while I go tired of leading sales teams and conducting business development that didn't really benefit me personally much and wanted to go in business on my own. When it comes to Business Development and generating revenue I have done it in a corporate environment for over 8 years, also with my educational experience having a double major in Business Mgmt and Psychology. Also have experience in web design and database mgmt.

His goal is to establish a large corporation and he has the capital to do, but he lacks the networking and development skills, and can't send an email to save his life. In terms of initial investment.

To start a 5 ton truck will require a 10,000 down-payment and about $20,000 in work to have it customized (tilt bed for example). Insurance is about $4000 a year and lease payments are about $1800 a month. For each truck I am able to put to work on full time basis and make it generate about $12,000/month. (Already have one contract for one truck negotiated)

Initially I will be driving the truck until the relationship with the client is very good, and the plan is to add another truck and trailer to diversify the type of loads we can haul.

My plan is to have at least 5-6 trucks/trailers on the road with contracts negotiated and then I can concentrate on maintaining the contracts and managing the drivers/fleet. His plan is to retire in a couple of years since he really doesn't need the money. So basically I will be a very active partner. And will be taking a salary in addition to the 49%.

The concern I have is that I will need to protect the 49%, I have done my research and realize that the business has the potential to generate good revenues in a booming economy in Alberta, if managed properly. One of the main reasons I want to partner with him is the strong financial backing.
Deal Fanatic
User avatar
Dec 3, 2004
5077 posts
3447 upvotes
Vancouver
I've never heard of anyone going 51/49 in a legitimate business relationship. I could see 60/40 or 70/30 (due to equity) etc. But going 51/49 indicates a lack of trust.

50/50 is the way to go always.

This actually reminds me of the Apple story. When Steve Jobs and Steve Wozniak first founded apple, they wanted to go 50/50, but I guess they were too heated (both passionate guys) and would argue all the time. So they wanted a tie breaker. The story goes that they offered a guy named Ronald Wayne (http://en.wikipedia.org/wiki/Ronald_Wayne) a free 10% ownership of apple. They basically told him he could have 10% of the company, if he acted as a tie breaker. He turned them down (a free 10% apple share). Well, he accepted it, but then sold it two weeks later.

Anyways, not suggesting you give away 10% of your company. But figure something out now. Do not consider a 51/49 at all. Period. If he wants full control of the company, then become a minority partner in it and have him pay you a salary. You're either partners (50/50) or you're his employee. PERIOD!
Sr. Member
Dec 8, 2003
916 posts
7 upvotes
masalma wrote:
Aug 27th, 2014 12:17 am
We do have a weird relationship, he is my wife's ex husband, and I am his son's stepdad. We have worked on a few small ventures in the past where I provided him with some marketing and web design as well as general business consulting.

I have been working in the corporate world since I graduate university and after a while I go tired of leading sales teams and conducting business development that didn't really benefit me personally much and wanted to go in business on my own. When it comes to Business Development and generating revenue I have done it in a corporate environment for over 8 years, also with my educational experience having a double major in Business Mgmt and Psychology. Also have experience in web design and database mgmt.

His goal is to establish a large corporation and he has the capital to do, but he lacks the networking and development skills, and can't send an email to save his life. In terms of initial investment.

To start a 5 ton truck will require a 10,000 down-payment and about $20,000 in work to have it customized (tilt bed for example). Insurance is about $4000 a year and lease payments are about $1800 a month. For each truck I am able to put to work on full time basis and make it generate about $12,000/month. (Already have one contract for one truck negotiated)

Initially I will be driving the truck until the relationship with the client is very good, and the plan is to add another truck and trailer to diversify the type of loads we can haul.

My plan is to have at least 5-6 trucks/trailers on the road with contracts negotiated and then I can concentrate on maintaining the contracts and managing the drivers/fleet. His plan is to retire in a couple of years since he really doesn't need the money. So basically I will be a very active partner. And will be taking a salary in addition to the 49%.

The concern I have is that I will need to protect the 49%, I have done my research and realize that the business has the potential to generate good revenues in a booming economy in Alberta, if managed properly. One of the main reasons I want to partner with him is the strong financial backing.
If you already have a contract negotiated than why don't you start the business yourself (bank may finance you if it's a decent contract) or consider asking him for a loan instead of making him an investor?

To me the fact that he's your wife's ex makes matters even worse. For example, while you'll never believe this can happen to you what happens if you and your wife split and you are no longer his son's step dad?

Seriously consider taking this as a loan instead of equity, even from him.

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