2 partners for new business now 3 how should we divide if I didn't want another partner?

Asked about 1 year ago - Cumming, GA

My buddy and I were going to go 50/50 on a new business. I think that he couldn't come up with his share of money so now he wants a 3rd person to partner up with us and only new guy and I pay start up cost. My buddy says he's not going to put up any money because of his experience in this field. He is going to pay us an hourly rate for our time until we hit a certain number then we all 3 divide 33%. What is the best route I should take? Higher %, more hourly rate, etc?

Attorney answers (3)

  1. Scott Benjamin Riddle

    Pro

    Contributor Level 19

    2

    Lawyers agree

    Answered . You are headed for big problems. Everything you asked is something that is worked out between the partners, not from responses from lawyers (or anyone else) who know nothing about the business. When all these details are worked out, a lawyer prepares several documents for the business (initial organizational documents, operating agreements, employment agreements, etc), and any major disputes are resolved at that time. The documents dictate how disputes are resolved later, and what happens if a partner wants out, dies, and among many other things. Without this structure, someone (if not everyone) is going to lose their money, even in a successful business. You are already starting with a dispute, possible money problems and splitting the pot more ways. If this is a viable business, do it correctly. If it is not worth this expense (which does not have to be exorbitant), is it even worth starting and putting money in?

  2. Glenn M. Lyon

    Contributor Level 15

    Answered . That is a business question (vs. a legal one) and a matter of negotiation. Either way, this will end very badly if you do not retain a business attorney to draft the proper paperwork and do it right. It will cost you much more down the road if you do not.

  3. Ainsworth G. Dudley Jr.

    Contributor Level 12

    Answered . I would sit down with your partners and an attorney and figure out each parties equity interest and role in the business. Once agreement has been reached, the attorney can then prepare the documents necessary to protect everyone. Good luck. If you need any help, feel free to contact me.

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