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View Full Version : Silent partner in a corporation... Help!


Gls
03-19-2011, 07:21 PM
Has anyone ever used a silent partner?
What kind of split should take place?
I am thinking about offering a "x" earnings on profit margin annually with regained investment over "y" years. I insist that I maintain greater than 50% of ownership.
What would you do?

I am set to open with decent equipment and professionalism but I was called today by a good friend. He wants to start a landscaping or presure washing business but doesn't have the time. He wants me to run the landscape business if that what he decides. I am in the position and already starting a company so I by no means need him as a partner but having a silent investor would be nice.
He wants to go buy a new truck, trailor, zturn and other equipment so I'm stuck with a dilemma.... What to do!
Any and all advice would be appreciated. I have a meeting tomorrow night with him, sunday.

Gls
03-19-2011, 07:23 PM
Or should I eleminate "y" all together?

The Cleaning Doctor
03-19-2011, 09:57 PM
How it works is if you have a corporation you had to issue shares which at this point you have all of them. Now if you want a partner or otherwise known as a share holder you sell each share for a set price. so if you want to keep control then only sell 49% of the shares.

When it comes time to send out dividends, you get 51% and he gets 49%. There is no adjusting this.

I would recommend that you read "owning your own corporation" one of the rich dad books. It really explains corporations in an easy to understand method. This is not to be used as the final answer, you need to get a lawyer involved to make sure it is all legal.

Steve
03-20-2011, 03:43 PM
Can you tell us why you would want to do this?

What is the benefit to this for you?

What do you feel is the downside to doing this?

KINGMADE
03-21-2011, 10:42 PM
Can you tell us why you would want to do this?

What is the benefit to this for you?

What do you feel is the downside to doing this?

Investor invest money, He spends the money to make more money... He and the investor both make money off of the investment.

picframer
03-22-2011, 05:41 AM
I have done this quite a few times over the years. Based on my experience profit should be capitalized (allowing the company to grow) with two options in the share holders agreement, one is to pay dividends as declared by the board (cover your butt and set up a small board of directors) and the right to buy shares back at their book value (quite often angle investors will want a buy back at book value x 2 or another multiple). I would not suggest you pay out all profits, every company that wants to grow needs to retain a portion of profits.

Steve
03-22-2011, 06:39 AM
I have done this quite a few times over the years. Based on my experience profit should be capitalized (allowing the company to grow) with two options in the share holders agreement, one is to pay dividends as declared by the board (cover your butt and set up a small board of directors) and the right to buy shares back at their book value (quite often angle investors will want a buy back at book value x 2 or another multiple). I would not suggest you pay out all profits, every company that wants to grow needs to retain a portion of profits.

Andy, what's your view on a start up lawn care business, is this something that should be done with it or do you feel this makes it all way to complicated and it's better just to go it on your own?

Gls
03-22-2011, 07:31 AM
That definatly makes more sense. I would never pay out all profit. I think I'm going tell him I want to give it a go by myself but would love for him to invest when the time is right. Ie when I get big enough to have multiple crews.

robgee05
03-22-2011, 08:39 AM
That definatly makes more sense. I would never pay out all profit. I think I'm going tell him I want to give it a go by myself but would love for him to invest when the time is right. Ie when I get big enough to have multiple crews.

If you get big enough to have multipole crews I would not offer him a share then. You will have already proven to yourself you can suceed. If yo do it up front I would say 2/3 u and 1/3 for him. and maybe payback initial investment and be sure to investa share of future dividends in growth.

picframer
03-22-2011, 09:00 PM
Andy, what's your view on a start up lawn care business, is this something that should be done with it or do you feel this makes it all way to complicated and it's better just to go it on your own?

Steve, it all depends on the person who is asking for the money and how well they can manage the business and how active the investor wants to be. I have no reservations going alone or bringing in outside funds, it's the cheapest way to grow any company.

I haven't done it with this landscaping/excavation company, if I were in my mid 20's with the knowledge I have today, I would do it in a heart beat and take the company across the country, however this is a semi-retirement business and it's already larger than I really wanted.

Steve
03-23-2011, 11:59 AM
Andy,

Can you share with us some warnings about doing this? Like what you need to look out for and where this could go wrong?

picframer
03-23-2011, 01:19 PM
Andy,

Can you share with us some warnings about doing this? Like what you need to look out for and where this could go wrong?

As a banker what I have seen over the years is a shareholders agreement that was not drawn up by a lawyer that clearly understood what you wanted and the law where you live, small companies can take off big time and the entrepreneur ends up on the short end of the stick, we all read about this all the time.

When talking to potential investors, I try to feel them out so that they understand silent partner/investor, does not mean they get a cut, get to call every day, week etc asking questions. Just outline all this in the agreement and offer quarterly reporting and an annual meeting.

Make sure you have liability insurance so that the shareholder can not sue you should things go wrong, once again a lawyer will explain and it will only cost you a few hundred to have the agreement drawn up.