LLC Percentages

[bahern]

Hello,

I am starting a new restaurant with my business partner. She has obtained the startup capital in the form of a personal loan from her father. We are both equally responsible for paying it back and we are both equally responsible for the work in the establishment. Additionally I am a graphics/web designer so I will be doing all of the marketing for free as well. We are trying to decide percentages right now. I would like to be 49% because she says that 51% is her lowest since the money is coming from her father. Her dad however seems to think that she should be taking a much higher percentage. Am I in the right to think that since we are both equally responsible for the loan and the work that we should be as close to equal partners as possible or should I be more flexible and take less of a percentage since we never would have had the money to do it without help from her family?

Thanks!

[Freelancier]

You say you are equally responsible for paying back the loan, but the question is: is there an agreement in writing that says that? Because without that, you could wiggle out of your responsibility.

It sounds like her dad's taking the biggest risk here, not you or her.

If the bank gives you a personal loan, do they expect to own a bigger portion of your business? No? Why not? Because their return is the interest on the loan (which is adjusted to a percentage that reflects the level of perceived risk involved).

So here's the real question: who will be better making the better decisions about the business? That's who you want to have in charge, not the person who loans you the money that you have to pay back even if the venture fails.

[ArcSine]

bahern, you can't come out of the starting gate with the three parties (you, partner, partner's dad) not being squarely on the same page regarding the understanding of the arrangement. When two partners have differing interpretations of their agreement, there are 20 different things that can result, and 19 ½ of 'em are bad (17 ½ of 'em involve lawyers).

As Freelancier said, get the the arrangement in writing, with all the details having been considered and addressed.

• Is the dad investing his capital directly in the business, or is he making a loan(s) to you and/or to your partner (which you are then, as a separate transaction, investing in the company)?

• If the former, is his investment to be some form of equity, or is it a loan?

• If the latter, how much exactly is he loaning to you, and how much exactly to your partner? (Note that this point will determine both how much ownership % you each receive as a result of the capital investment, as well as establishing the amounts of your individual obligations to Dad.)

• If you and partner are sharing the workload of the basic operation evenly, yet you are handling all the marketing work yourself, that should probably be taken into account in the ownership percentage agreement. Alternatively, depending on the facts, maybe you could receive some flat salary-like compensation off the top for the marketing work.


Not trying to play the role of Wet Blanket here; on the contrary, once you and your partner have all the details committed to paper and you're both 100% clear on how it's all to work, you both can then put those nagging concerns behind you and go pedal-to-the-metal working as a team to make the restaurant a rocking success.

Best of luck with it.

[Osprey]

make sure you do all the contracts and percentage discussions now while everyone is happy with each other - because if things go south, contracts are all that matter.

Her father is looking out for his daughter so of course he is trying to get her a higher percentage, but just remember, if she owns 51% - she rules the kingdom.

Maybe a rule can be in place that says that she gets 50%, he gets 25% and you get 25 % - then, once the load is paid off, he has to relinquish his rights to you...then you are both back to 50/50.

[icetzou]

If you guys are having this much difficulties deciding on the percentage right now, get out of this partnership.