Discussion about Percentage or Partial Ownership of a Business



Mark Fabela
Question on the business side of things. Anyone in here done deals with partial ownership in exchange for services? I've been approached by a friend whose luxury brick and mortar I helped launch which wound up being very successful and has expanded to 3 locations, to become a partner in the new business – an e-commerce site in the same niche selling the same products. But rather than pay me for services they want to give me partial ownership of the business. The only question is for me – how much my services are worth to the company? I have never been down this road before so it's kind of a shot in the dark for me. In my mind (I could be wrong) I was thinking 20% of profit (3 people involved). The business is a physical product business (no dropshipping) so there is inventory cost (about $90K they've invested and ready to go) and infrastructure (storage and shipping) that would be handled by them. I drive traffic. There's a small budget built in to start for assets. Mid-range difficulty SEO wise. So in my head I thought 20%. I got an offer of 10%, we ended our first meeting at 12.5-15%, and next meeting will explore an incentivized roadmap based on milestones to get to 20% (of profit). How do you guys structure a deal like this? Is 12.5 too little? Is 20% too much? Is 20% still too little? Say there is a million in profit and I get $150K – still seems kind of light to me would you agree? This is a complete shot in the dark for me I'm 100% open. Thanks in advance.
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Truslow 🎓
I've been down this road before. First thing… are they working for free? Or drawling a salary in addition to ownership? That's where it gets tricky. If you're working full time, then you need a living wage. Most businesses don't show a profit for at least a year and many much longer. Amazon was 7 years. Can you afford to work that long without drawing some pay? Can you afford to work ENOUGH to make it succeed while doing something that pays the bills?
Looking at how the business is structured can be a factor too. If it's separate from the other business, then it would be conceivable that the online business would, in effect, purchase inventory from the brick – and it may be selling those items at a profit, too. Which business covers inventory storage – both? What percentage for each? You've identified some of these in your numbers, but it's not clear which business bears the burden or if it's shared equally.
Ultimately, I think you hit it on the head with your last couple of sentences. Shots in the dark tend to miss – so don't take shots in the dark. Have someone who knows about these things take a look at the contract and make sure it's equitable and has the same potential for everyone to succeed.
That's my advice. Take it for what it's worth since, obviously, I'm an independent white label SEO consultant – not the owner of a major online business.

Mark ✍️ » Truslow
Wow this is very good insight thank you
-They will not be taking a salary and want to invest their portion back into the business to grow inventory
-Inventory would be purchased using their existing accounts and the e-commerce would be acquiring the products at cost
Thanks for the input you pointed out some solid issues to explore and get super clear on. One thing in particular – and what I'm trying to decide – is the ENOUGH portion you highlighted because quite frankly I'm taking time from my business so I definitely need a portion that's sexy enough to keep my attention.
Thanks again!
Truslow 🎓
Keep in mind, too – their efforts in the brick side bolster the digital side. They may be re-investing the digital earnings, but they are certainly making money from the brick. Depending upon how the companies are set up and the money moves – they could be seeing indirect results of the online work which would result in wages or profits that don't show on the online side. That can happen even without any "intent" to screw anyone – so I'm not saying they are bad guys or out to get you… it can just sort of happen if you aren't paying attention.
Again… talk to someone who does this for a living. It'll cost ya some money up front, but ensure you're going to be in a position to make a return on the back.
Mark ✍️ » Truslow
Thank you so much you've provided some great insights for me to speak about at our next meeting and I appreciate it very much.
Nijhof » Truslow
Exactly, I would want in on the whole pie.
Mark ✍️ » Mehta
Thank you
Mehta » Mark
NP!

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Monica
Are you talking about 20% profit sharing or 20% ownership of the company? Is the "new business" what you'd have partial ownership of, or you're asking for 20% of the established business which includes this new venture? Are you going to be working full-time on this new venture or is it something you're doing on the side?

Mark ✍️
Thanks Monica
– 20% ownership and entitled to 20% of profits. For the level of work I put in no matter how much or how little I would be entitled to 20% of profit, or 20% of sale of business. Maybe that's something should get more clear on.
– The business is a new venture with a new Limited Liability Company (LLC) and new articles of operations in which I am listed on
– Will not be full time will be working on it passively a few hours a week but I'm confident I can dominate the niche.
Monica » Mark
Got it. I can't speak from being in your position, but as a founder currently exploring equity for early employees in my company — 20% seems high when the business itself has already been largely de-risked and you'd only be working part-time compared to the other founders. Especially if, as mentioned above, they won't be taking a salary but you will.
I know someone who is also a founder who recently brought on a third co-founder, who was part-time for over a year while he and the other founder were full-time, no paycheck, taking on all the risk, working insane hours to get the business off the ground, re-investing all profit into the business, etc.
What they did was set up a plan to gradually increase ownership once he went full-time. Maybe a structure like that is something you can consider. Starting at e.g. 12% and increasing up to your target of 20% if you are still involved 18-24 months later.
Also, how easy or hard it is to remove someone from the business also depends on the laws in your country. Probably worth looking into.
But personally, I can very much understand why 20% feels like a huge part of the company to give away to a part-time specialist, even if you are SUPER good at what you do.
You get great upside if it works, including in the sale of the company, but not much downside if it doesn't.
Maybe splitting the profit sharing vs. ownership would help. If making an Return of Investment (RoI) on your time is what's important to you, then keeping the profit share while decreasing ownership could be more palatable for them.
Mark ✍️ » Monica
Thank you for the detailed insights the fact you're in the same stage but on the other end of the deal it's super informative.
You hit the nail on the head mentioning the variables:
1. the de-risked business
2. the co-founder time
These two variables are making me think the most.
Fortunately re: #2 the actual manpower behind operations (at least in the beginning) is minimal so not the typical insane hours for co-founders. Once I turn on traffic and we get sales it will require little extra effort to fulfill on their end. Now that I think about it – this is probably the main reason I was thinking the percentage might be on the higher end? Does the hours / lack of hours it takes for operations on the cofounders end come into the picture?
Idk I can go on forever! Ha.
All in all the structure you mentioned is similar to what I was thinking. A structure like that makes sense for everyone. I want to make it fair for everyone while keeping it interesting for myself since all of us here know what good Search Engine Optimization (SEO) can do.


Steve
This goes for every partnership out there. Every partner gets paid the same and after payroll and expenses and all the other stuff, then the profit is split between the partners as agreed on by everyone. Anything less than that is not a partnership, it's deferred payment in the hopes of making money later.
Now that I am at my computer instead of my phone, what you are describing is not a partnership, it is a profit-sharing deal. They may look and feel a lot alike, but they are very different things. As a partner you have more rights than you would as a profit-sharing employee. But you should also have more risks.
I am currently involved in 2 businesses as a profit-sharing employee because I do not 'want' to be a partner. If you are listed as a 'partner' on any business paperwork, you could be liable for something the other partners do. A product fails and causes injury? You are at risk. One of the partners does something 'illegal' through the company? You are at risk. The business ends up in heavy debt? You are at risk as a "partner". As a profit-sharing employee you are not exposed to that risk.
Words have real legal meaning and we need to be sure we are using the right words in any paperwork and agreements. Personally, I have had partnerships in the past and will never have one again. Ever. I am fine with profit-sharing, I am not fine with partners.

Mark ✍️ » Steve
Thank you! I should have been way more concise with my language truth is at this point I'm not entirely sure as we just had our first meeting I will get super clear on this language next meeting. Thank you for the feedback on your partner experience I will definitely look in to the profit sharing employee route as well that was clutch I appreciate it. Definitely don't want any of those headaches you mentioned lol

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