Profit Sharing Percentage

[master791]

Dear Members,

I have no past experience in the field of business and I need your advice/opinion for a new business opportunity offered to me by a friend living in Pakistan (while I live in Saudi Arabia).

My friend in Pakistan has some excellent business plans which are really workable however he has no money to invest. Therefore, he is asking me to do full investment and he will put all his efforts to set up and manage the business. In return, he will share 50% profits with me.

He will also charge a salary (X-amount) on monthly basis for a period of one year.

Could you please help me in finalising this proposition? Is it worth going or useless?

I know for many of you, this could be a silly question. However, I need your help because I have no experience and knowledge about these things. Please give me your advice to better protect my investment and make this offer more meaningful for both of us.

Thanks and regards

[Harold Mansfield]

In my opinion, if you're putting up all of the money you should have a bigger share than 50%.At minimum 51% so that you have a controlling share and vote. Especially if he's also drawing a salary, while you're only drawing net profits. I see it as you're sharing profits with him, not the other way around.

Unless he owns or has developed some proprietary process or patent or recipe (that is also part of the deal and ownership), I would suggest a smaller percentage for him + a min salary with the option to buy a larger share if things work out. I'm sure his ideas are great, but ideas are a dime a dozen. They are nothing without the money to execute them.

Based on the limited info given and not knowing the amount we are talking, I'd offer something like 70%/30% + his salary. His salary is part of the overall investment since it's coming from funds you're putting in up front. If after a year you've made back your initial investment and you can now both only draw from net profits, give him the option of buying more shares of the business.

I'm sure others have different opinions. To me offering to share 50% of nothing for the pleasure of putting in all of the money and taking all of the financial risk is not a good deal.

[PZagotti@ZnBcpa.com]

Hi kind of agree with Harold, if the other person does not have a special skill set that lends itself to the creation of operation of the business then I am not sure 50 / 50 is all that hot. Remember at the end of the day you are investing in this person as no company really exists.
So based on your question is he asking you to promise him a salary for a specified period of time?
If so then what happens if you want to exit the company early?

Now I am assuming you are in a / from a different country based on your question.
So do you know if there are any restrictions of foreign investors ownership %?
If you create a contract with the other person how is the rule of law in the country and how will it be enforces?
What tax implications are there between your home country and the foreign country with regards to reporting?
What kind of entity is this going to be?
What liabilities are you taking on my being an investor in this company?
What economic treaties does you home country have with this country?