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  • #998819
    andrewn
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    Hi all,

    I am so glad to have found this community and have learnt so much more already after reading several posts. I still have a lot of questions that I hope the community can assist me with.

    I am in plans to start up my own business and want to bring my assistant on board as a co-owner. My thinking is along these lines:

    If the initial investment required is $80,000 and I contribute $50,000, she contributes $10,000 and we get a bank overdraft of $20,000. Does that mean that I own 83.3% of the equity in the business and she will own 16.6%?

    If that is the case, and if we decide to draw on profits after every 12 months, then that is the %share we receive regardless of how much we draw? Ie we decide to draw on $10,000 of the profit, then I receive $8333 and she receives $1666?

    My next question is if down the line, she wants to increase her equity on the business to say 25%, how does someone calculate how much additional contribution that will be to make it 25% of the business?

    There are many more questions, but I guess these would be sufficient to kick start the conversation.

    Thanks in advance!

    #1216194
    Paul – FS Concierge
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    [USER=111572]@andrewn[/USER] –
    Hi And Welcome to Flying Solo. It is great to have you!

    Thank you for joining our community and posting today.

    Ultimately, there are no rules around the questions you ask – it is literally up to you and your proposed partner.

    In all cases, it is best to have a Partnership Agreement so that if anything changes in future, there are clear pathways to proceed.

    Valuations in future can, if you want, be based on a multiple of net profit (after all costs). Eg, in my industry, the most commonly used valuation is 1.5 x annual net profit.

    So if my business is netting $100K, then 100% of the business would be $150K – there are a million and one variables though so you are best off seeking professional advice.

    [USER=5318]@JamesMillar[/USER] – may have some further advice.

    Cheers

    #1216195
    James Millar
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    Your first step is to determine the appropriate structure. From there you can determine the compliance issues and mechanisms for disbursement of profits. Initial thoughts are that the existence of unrelated stakeholders normally rules out a discretionary trust but a unit trust, company or partnership may work.

    There are lots of factors to consider but if you want quality advice you probably won’t find it free on the internet.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1216196
    Dave Gillen – Former FS Concierge
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    Hi [USER=111572]@andrewn[/USER],

    Normally you would issue shares in the company – say 6 shares in this case (you owning 5 and your partner owning 1) or it could be 60 shares with 50/10. Later you can sell 1 or more of your shares to the other person. Or sometimes new shares are issued and purchased. Some googling on this topic will help.

    Initially your company will be worth $60k but that will change over time, and you’ll need an agreed way to calculate the new business value. That will determine the cost of your assistant buying more shares.

    As Paul mentioned, the ownership of the company doesn’t have to match the investment amounts, because other factors may be involved such as the split of labour or the relative experience/contacts/intellectual property you each bring to the table. In the end it all has to go into a solid contract because there’s no set answers and it’s very easy for one partner to dispute what’s fair at some later point.

    Co-ownership can be pretty complicated, so for small percentage stakes it’s also worth investigating other options/incentive schemes/bonuses.

    Good luck and hopefully some of our members can share their experiences.

    Dave

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