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  • #966370
    Johnny Drama
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    Hi,

    I’m new to the forums and about to embark in a side business with a few business partners. My main question is in regards to individual shares in the business.

    The Scenario…

    1. There are 5 people investing in the business.

    2. 3 people are actually working in the business as side projects to their FT jobs. They have all invested $20k into the project. They will approximately spend 20 hours per week on the project.

    3. There are 2 people that are not going to work in the business but are set to be financial investors only.

    The Question…

    To give everyone a 20% share in the business, how much should the 2 finincial investors have to put in? As if they only put in $20k it is a very good deal for them as they do not have to work in the business like the other 3 do.

    What would people’s advice be here?

    #1017762
    FionaFell
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    If all 5 people are entering this arrangement, then I suggest getting them all in one room and nutting it out.

    A 5 way spilt of assets might be ideal, or perhaps a different way of sharing profits and costs. (1/2 goes between all, and the other half based on performance input to the operations).

    I think each of the 5 people need to feel comfortable with the way everyone else is positioned as well as their own spot in the group.

    #1017763
    Johnny Drama
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    FionaFell, post: 20485 wrote:
    If all 5 people are entering this arrangement, then I suggest getting them all in one room and nutting it out.

    A 5 way spilt of assets might be ideal, or perhaps a different way of sharing profits and costs. (1/2 goes between all, and the other half based on performance input to the operations).

    I think each of the 5 people need to feel comfortable with the way everyone else is positioned as well as their own spot in the group.

    Thanks for the reply Fiona. I think a way of sharing the profits and costs is something that would be ideal. I am hoping there might be a few people on this board who have similarly backed business models and could share some light.

    Thankyou once again.

    #1017764
    deskchecked
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    Well, theoretically the “working members” would also be paying themselves a salary to compensate them for their work — which comes out of the pockets of all members. By paying yourself a salary that you feel you’re worth, you’re really nullifying (or at very least reducing) your entitlement to new shares — at least in theory! :)

    If you’re not planning on paying yourselves a salary (perhaps due to initial cash flow issues), perhaps try to come to an agreement with your peers as to how much your work is worth in terms of shares? Then issue new shares at the beginning of each financial year commensurate with that work. If your “non-working” peers wish to invest more money so that their original investment is not diluted with the issue of new shares, then they can do so.

    Finding that work-to-cash ratio will be something you’ll have to figure out for yourself though I guess — and it’ll likely be somewhat speculative.

    Please note that I’m not a financial advisor or anything of the sort, and others may find this advice/suggestion/opinion to be reprehensible. Just my two cents. :)

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