Home – New Forums Starting your journey Equity Advice – Startup

  • This topic is empty.
Viewing 15 posts - 1 through 15 (of 26 total)
  • Author
    Posts
  • #978551
    NickHumphries
    Member
    • Total posts: 418
    Up
    0
    ::

    Hi guys,
    Over the last few months I’ve been working on an online media project with a guy over in the States.

    He pitched me his idea, I put money into developing it with the idea of going in 50/50. Sooner or later, I ran out of money in which we were both responsible, we couldn’t get the prototype finished and now he’s looking to get an investor on board. He proposed that I get 30% of the company and he keeps 70% because my role is easily replaceable and will have less work in the future and investors will be cautious to invest because here’s a guy that doesn’t do much, but keeps 50% of the company which doesn’t add up..

    So anyway, I’m okay with the change now.. but initially I was p****d off! The fault comes from not having clear expectations of each other and something in writing with a legal document or something.

    We usually talk through skype chat, and we now have clear expectations of each other and our equity stakes confirmed through the skype chatlog.

    Is a skype chatlog enough to use as legal collateral? Or is getting something written up like a contract or something like that a better solution?

    If so, where do I start? And any idea on how it would work with a foreign person?

    Thanks

    #1107858
    yourvirtualboard
    Member
    • Total posts: 569
    Up
    0
    ::

    As you’ve noticed different expectations always produce disappointment for someone and contracts are great to clarify who, what, how, when etc.

    It’s easy to get carried away with an idea or be over enthusiastic and possibly a little too lax with the nuts and bolts of an agreement but when it goes off track a contract is the reference point for all parties. Also is drafting a contract many of the possible scenarios would be considered and taken care of before the pop up unexpected (as they have now).

    If you have clear expectations draft that into a contract would be my opinion rather than assuming everyone is on the same page. Even more so if there is great potential for what you are working on.

    #1107859
    NickHumphries
    Member
    • Total posts: 418
    Up
    0
    ::
    yourvirtualboard, post: 119745 wrote:
    As you’ve noticed different expectations always produce disappointment for someone and contracts are great to clarify who, what, how, when etc.

    It’s easy to get carried away with an idea or be over enthusiastic and possibly a little too lax with the nuts and bolts of an agreement but when it goes off track a contract is the reference point for all parties. Also is drafting a contract many of the possible scenarios would be considered and taken care of before the pop up unexpected (as they have now).

    If you have clear expectations draft that into a contract would be my opinion rather than assuming everyone is on the same page. Even more so if there is great potential for what you are working on.

    There is amazing potential on what we are working on – a startup similar to ours recently got really good funding which justifies our position. That’s why I want to be really secure with this.

    A contract with my partner.. does this need to be seen by a lawyer, or is it just something I draft up and get him to sign?

    #1107860
    James Millar
    Participant
    • Total posts: 1,739
    Up
    0
    ::

    Hi Nick. The problem I see is more to do with (a) what / where the actual business entity is and (b) what the legal and practical enforcement process is for that entity given the jurisdiction issues. One party is going to be disadvantaged.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1107861
    Dave.Goralski
    Member
    • Total posts: 56
    Up
    0
    ::

    Nick

    Forget Skype chat logs, what investor/VC firm is going to invest in a a business without a company structure, share assignments, the class of the shares etc

    How is the investor going to take equity without any of this being setup.

    #1107862
    Kennethti
    Member
    • Total posts: 415
    Up
    0
    ::
    JamesMillar, post: 119767 wrote:
    Hi Nick. The problem I see is more to do with (a) what / where the actual business entity is and (b) what the legal and practical enforcement process is for that entity given the juristion issues. One party is going to be disadvantaged.

    I echo James here. I think a bigger issue will be:
    1. What is the business entity,
    2. Where is it based,
    3. What are the two of you doing,
    4. Where will your clients be,
    5. How will disputes be managed,
    6. Where will disputes be managed,
    7. How can the two of you walk away if there is a breakdown in the relationship.

    Meanwhile I’m concerned about this guy saying that you are “easily replacable”. Partners just do not casually say that about each other.

    #1107863
    John C.
    Member
    • Total posts: 439
    Up
    0
    ::

    I hope I’m wrong Nick, but it sounds to me that your so called partner is just trying to get you to do free dev work by promising a share of future profits. Without a solid contract, someone who would casually tell you at this early stage that you’re easily replaced is going to work out a way to replace you… easily!

    How much money has each of you contributed so far?

    I’d be inclined to stop all work and hold back any further funds until you have a clear contract in place and a company structure setup in such a way as your share is protected and he can’t make restructuring decisions without your consent.

    It’s definitely not a good start to a long and happy business relationship.

    Good luck,
    John

    #1107864
    NickHumphries
    Member
    • Total posts: 418
    Up
    0
    ::
    onsiteTECHS, post: 119801 wrote:
    I’d be inclined to stop all work and hold back any further funds until you have a clear contract in place and a company structure setup in such a way as your share is protected and he can’t make restructuring decisions without your consent.

    Thanks for the comment, but those are the exact reasons why I’m coming here for help. Are there templates I can use out there that I can draft a contract with? Does this type of contract need to be overseen by a lawyer?

    I have pretty limited knowledge of this stuff..

    #1107865
    NickHumphries
    Member
    • Total posts: 418
    Up
    0
    ::
    Kennethti, post: 119796 wrote:
    I echo James here. I think a bigger issue will be:
    1. What is the business entity,
    2. Where is it based,
    3. What are the two of you doing,
    4. Where will your clients be,
    5. How will disputes be managed,
    6. Where will disputes be managed,
    7. How can the two of you walk away if there is a breakdown in the relationship.

    1. An LLC
    2. United States
    3. Other guy is the originator of the idea, Founder, CEO involved in business development and growth – I am the “President” involved in day-to-day operations of the company and provided early funding to get the idea off the ground.
    4. It’s an online service available to downloaded worldwide
    5. Not sure
    6. Not sure – I guess in the states through online methods of communication
    7. Again not sure how this works

    #1107866
    AgentMail
    Member
    • Total posts: 1,741
    Up
    0
    ::

    Hi Nick,

    My first impression is yes, get a solicitor involved, but then it depends on what sort of dollar figures we are talking about.

    If it is only a couple of grand, of course you would spend more than that in legal fees. If it is tens of thousands and beyond, definitely spend the money, even for the initial consultation to meet with a law firm and get their advice.

    Don’t use templates, they will be riddled with loop holes, and the US will be masters at finding them.

    The other issue a legal firm will be able to identify is the differences in contract law between Australia and the States, which will be vital.

    Hope this helps

    #1107867
    James Millar
    Participant
    • Total posts: 1,739
    Up
    0
    ::
    AgentMail, post: 119916 wrote:
    Hi Nick,

    The other issue a legal firm will be able to identify is the differences in contract law between Australia and the States, which will be vital.

    Hope this helps

    I think thats the starting point

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1107868
    NickHumphries
    Member
    • Total posts: 418
    Up
    0
    ::
    AgentMail, post: 119916 wrote:
    Hi Nick,

    My first impression is yes, get a solicitor involved, but then it depends on what sort of dollar figures we are talking about.

    If it is only a couple of grand, of course you would spend more than that in legal fees. If it is tens of thousands and beyond, definitely spend the money, even for the initial consultation to meet with a law firm and get their advice.

    Don’t use templates, they will be riddled with loop holes, and the US will be masters at finding them.

    The other issue a legal firm will be able to identify is the differences in contract law between Australia and the States, which will be vital.

    Hope this helps
    It’s only a few grand, but the potential I see in the company and my business partner is in the millions..

    #1107869
    John C.
    Member
    • Total posts: 439
    Up
    0
    ::
    NickHumphries, post: 119913 wrote:
    Are there templates I can use out there that I can draft a contract with? Does this type of contract need to be overseen by a lawyer?

    I have pretty limited knowledge of this stuff..

    Contracts don’t need to be overseen by a lawyer – many written and verbal agreements between two parties are considered contracts from a legal perspective – but there are so many legal nuances that it’s easy to make mistakes or leave important things out of a contract if you try to do it yourself or copy a template that was designed for another person or another situation. Often two words which in normal conversation mean the same thing can have totally different meanings in a court of law.

    In my opinion – if you’re talking about a project that has the potential to involve thousands of dollars in cost or profit at some point in the future, you would be foolhearty to get into a business relationship – with a stranger – who is in another country – who has the benefit of being a resident in the country in which the business will be legally incorporated – who is responsible for inviting and dealing with investors – without getting a lawyer involved (and a good one with experience in dealing with US law).

    I hope it works out for you Nick.

    Cheers,
    John

    #1107870
    AgentMail
    Member
    • Total posts: 1,741
    Up
    0
    ::
    NickHumphries, post: 119918 wrote:
    It’s only a few grand, but the potential I see in the company and my business partner is in the millions..

    Then I think you have answered your own question :) If what is potentially on the line is millions, investing a few hundred, or even thousand to get the i’s and t’s lined up properly is a worthwhile step.

    #1107871
    NickHumphries
    Member
    • Total posts: 418
    Up
    0
    ::
    onsiteTECHS, post: 119921 wrote:
    Contracts don’t need to be overseen by a lawyer – many written and verbal agreements between two parties are considered contracts from a legal perspective – but there are so many legal nuances that it’s easy to make mistakes or leave important things out of a contract if you try to do it yourself or copy a template that was designed for another person or another situation. Often two words which in normal conversation mean the same thing can have totally different meanings in a court of law.

    In my opinion – if you’re talking about a project that has the potential to involve thousands of dollars in cost or profit at some point in the future, you would be foolhearty to get into a business relationship – with a stranger – who is in another country – who has the benefit of being a resident in the country in which the business will be legally incorporated – who is responsible for inviting and dealing with investors – without getting a lawyer involved (and a good one with experience in dealing with US law).

    I hope it works out for you Nick.

    Cheers,
    John

    Okay.. I will consult a US lawyer!

Viewing 15 posts - 1 through 15 (of 26 total)
  • You must be logged in to reply to this topic.