Forums: Discussions for entrepreneurs and small business.

Myself and one other person have come up with an idea for a new product.  At first we would like to share the financial costs 50/50 until the time comes when I (partner A) will apply for a loan for the start up funds we will need to really get the ball rolling.  The other person (partner B) has the connections and contacts for the production and engineering of the product.   We initially expected to become a LLC between Partner A and partner B.  However I need to know how to include one other person without making them a full partner in the company.

We have found a person that that has made our idea into a drawing for a prototype and will be overseeing the production of the first prototype (partner c).  Partner A and Partner B will cover the cost of the prototype however the engineers has not charged for his skills (drawing etc) and in return wants 7% of the company’s profits upon sale of the company which we are happy to do.  But what if we don’t sell the company?  How do we structure a buyout clause?  And what would Partner C be called?  Partner C should be a silent partner and we don’t want to pay him out monthly/quarterly/yearly if we don’t sell the company.  And we don’t want him to be a full partner in the company. 

I would like to be able to call patner C a silent partner that recieves 7% of the profits upon sale of the company or Partner A and Partner B have the option to buy out Partner C at (fill in the blank) point.  But I'm just not sure how to determine what those buyout figures would be before we've even sold one product.

Hope thats not too confusing

-------------------------

Andrea,

Find a lawyer in your area that specializes in corporate law. Explain the situation to him / her.   Here in mid-Florida corporate law lawyers charge between $150 - $500 an hour depending on experience (mine charges $350/hr) so it is not too expensive - especially considering the cost to you and partner B should things go awry with person C. I would recommend a real lawyer over a service (e.g. LeagalZoom) for this type of situation. You will find that most Lawyers charge little more to set up an LLC than do the law service sites and they will do a better job. Good Luck!

Regards,

David B. Goodrich

IdopI Technologies, Inc.

Partnerships are almost always fraught with problems. If you really HAVE to form a partnership DEFINITELY talk to a lawyer and get it formalized.

Even if you do that, there's a good chance you'll live to regret it. My advice is, if you're thinking about a partnership, DON'T.

-------------------------