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Lanae1
09-26-2010, 04:31 PM
Hello everyone,
I'm new to this site and have alot of questions so far. I had plans to establish a management consulting business in about a year after completing my Professional MBA. In fact, I'm currently building it very slowly.

However, i've just been presented with an opportunity to partner with someone who desires strongly to be in partner with me. The reason being is because of my background experience of 20 years as a Personnel Manager in the Military, as well as my incurred experience as a defense contractor. My added value is my supposedly competitive edge as a disabled veteran. Her background is IT of which I'm confident is a very good added value. However, I carry the majority of business ownership.

My question is I'm hesitant because we are co-workers and she is currently in partnership with 5 others in a franchise of which they are struggling to maintain payroll. She desires to establish quickly and work through what we don't know later.
I desire to know as much of the questions up front now.

It is her desire to establish the business, win some contracts and hire family members as outsourcing. I'm a little reluctant because I believe as a start up business our goal is to ensure we have a reasonable salary if possible before we hire others.

Secondly, I have an ethical drawback of paying our husbands for work that we develop to keep down costs. I believe the husbands should reap the benefits of any profits and defer wages as they are considered silent partners in this process.

It seems that my hesitation is becoming offensive to my potential partner as she is ready to move forward. However, I desire to have a business plan, partner agreement, salary agreements etc....before we sign the dotted line.

I've encouraged her not to wait on me if she desires to venture this opportunity now; however, she desires that we do this together.

Can you all help me in some questions I have? I'm reading alot but need some "bottom line answers"

1. Should we be established as an LLC or S Corp
a. we will be working out of our homes. Who's address should the business reflect under.
2. I'm I correct in keeping husbands as silent partners, deferr salary and allow them to reap from the profits, if any.
3. Is iit wrong to demand in the business agreement to delay hiring until at least 2years of favorable operation of which, until we are able to hire, contract bids will only be pursued based on owners skills, knowledge and abilities.
4. I'm confident I'm not wrong to demand clarfication of ethical standards but don't want to be offensive.
ex: Once company is successfully producing excess
-- establish charity distributions of no more than 10% to various charities, including our own churches that we attend or manage.
-- Hire family members only if they qualify and not based on keeping family members gainly employed.
-- Do we run a great risk of nepotism as owners if we only hire immediate family members?

I have alot more questions. These would not be problem questions if I was a single corporation owner, but now since I'm considering a partnership I want to be sure that my or her ethical standards are not imposing or unreasonable.

Any inputs you provide would be greatly appreaciated. I'm confident that you all have much more experience than I and I respect all of your candid comments.

v/r
Lanae Consulting & Services, Inc.

dizzle
09-27-2010, 12:47 AM
Welcome Lanae, this is a great place to ask those questions!

1) establish your company as an LLC vs S Corp because you mentioned yourself that you will have more business ownership because of your background in the field that the two of you are going into. If you choose to be an S Corp, you will have to have 50/50 ownership, along with a minimum (i think) of 75 shareholders who will have say is how the company is ran/

1a) I personally would put the business address in the name of the person who will hold more responsibility for the company (whether it be her vs you or vice versa).

2) I didn't full understand what you meant by this but i'm assuming that you mean that husbands will be kept as silent partners and will also get trickled down profits into there pockets, because they are your husbands. If that's so, assuming that you trust your partner enough that you would allow them to reap the benefits of your work, I don't see and issue with this at all.

3) No, that is completely acceptable before going into business with anybody. Think of this as a used car sale. The car salesman wants you to sign sign sign and drive away. They're putting fantastic figures in front of you, are promising you the world and back, and want you to "trust" them on "good faith" only to turn you around, bend you over, and have there way in the long run. It's the same for any business partnership. If someone came up to me and wanted me to back them in this venture financially or any other way, I want to see how they plan on making this business successful before I not only invest my knowledge/money, but my time that's absolutely precious to me.

4) I have no issues with hiring family, only if they're qualified for the position amongst the rest of the candidates that applied for the position. I would never favor a family member because they're "family". I'm running a business, I need to be successful. If you want a job because we're cousins/brothers/related somehow, show me that you're worthy of me paying you whatever it is that i'm paying. M-F, 8-5 (or whatever your hours are), you're my employee, not my cousin/brother/relative. Simple as that.

Good luck with the venture. I personally would stay put as to where you are until she puts some solid figures and projections in front of you that are real and obtainable.

Spider
09-27-2010, 09:03 AM
I have a single answer to all your questions - Don't do it!

There are way too many fundamental differences between yourself and this other person. I refrain from calling her "a partner" because there is no partnership between you and none likely. You have ethical differences, practical differences, management style differences, personal style differences, security differences -- in fact, I cannot see anything in what you have said on which you agree. This is a terrible basis on which to form a partnership or even a working relationship.

Understand that when you go into business with someone else - whether as partners or co-owners - you must be able to trust one another and have a good level of agreement on fundamental issues. It seems to me this person and you are not on the same wavelength at all.

Don't do it! Fire this one and find another partner to work with.

Business Attorney
09-27-2010, 12:13 PM
1) establish your company as an LLC vs S Corp because you mentioned yourself that you will have more business ownership because of your background in the field that the two of you are going into. If you choose to be an S Corp, you will have to have 50/50 ownership, along with a minimum (i think) of 75 shareholders who will have say is how the company is ran

With the information the OP has provided, it is difficult to say whether an LLC or an S corp is more appropriate, but I want to point out two very important errors in the quoted section above:

1. You do not have to have 50/50 ownership in an S corp (or in any other entity, for that matter). Dizzle may be confusing the fact that in an S corp you can only have a single class of stock, so that IF you have 50/50 ownership, you must share any dividend distributions in that same proportion. However, in an S corp you must pay salaries to the owner/employees and you may pay bonuses based on performance, so by no means does that single class of stock requirement limit your ability to have appropriate differences in amounts to paid to different employees simply because they also happen to own stock.

2. The minimum number of shareholders in an S corp is ONE. There is a maximum number of 100 shareholders. It is unlikely that the maximum number of shareholders will ever be relevant to you because the other limitations on S corps (the single class of stock requirement and the requirement that all shareholders be individuals or certain estates or trusts) usually make the S corp unworkable once you get beyond a small group of shareholders.

I have an article on the LLC vs S corp (http://www.limitedliabilitycompanycenter.com/llc_vs_s_corp.html) decision that may help explain the advantages and disadvantages of each form of entity.

dizzle
09-27-2010, 01:03 PM
err oops, thanks for the clarification :)

KristineS
09-27-2010, 02:37 PM
I have to agree with Frederick on this, you might want to look very hard at where things are going before you form this partnership. It sounds like you have some very fundamental differences regarding how the business should be run. I think you are definitely right in wanting all this stuff ironed out before you enter into partnership together.

Steve B
09-28-2010, 04:10 AM
The answer was so obvious to me about a third of the way down. DON'T do it. You already have huge differences in approach with this person ... you'd be crazy to move forward. It's hard to be in a partnership in ideal conditions - this is far from ideal.

Blessed
09-28-2010, 07:47 AM
I'm agreeing with the majority here - Don't do a partnership with this individual. In general I'm pretty sour on partnerships because of some bad personal experiences. In your case I see too many opportunities for your potential partnership to turn sour because of the differences between you and your prospective partner.

Harold Mansfield
09-28-2010, 11:58 AM
Looks like a mismatch to me. It looks as if your Disabled Veteran status is the prime motivator for the partnership..outside of that, I can't see where you have any commonalities on how you want the business to run.
You said that you have already stated "Don't wait on my if you want to move forward"..sounds like things I used to say to women whom I have dated when I didn't want to move the relationship to the next level.
Seems like in the back of your mind you have already made the decision.

I would be really leery of going into business with someone who wants to hire their family right away. Sounds very suspect to me, as if they are looking for something easy to pillage and make a quick buck.
Everything about it sounds wrong.

Harold Mansfield
10-04-2010, 03:06 PM
I was just reminded of a time when some friends wanted to go into house flipping...buying distressed properties, fixing them up and (hopefully) selling for a profit. They didn't bring anything to the table except the idea and the whole plan was based on my ability to get a G.I. Home first time loan to get the ball rolling.

Had they been a licensed contractor ( not just an amateur handyman), or brought some kind of financing experience to the table, I may have gone for it, but at the time all I heard was "We'll use your Veterans status for the loans".
I declined.