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Business Partnership - advice needed pls

jw01

New member
Jul 3, 2005
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Hey folks,

So I'm looking to open a business (restaurant) and at the moment I have two partners. Now I know things get really messy with partnership that is why I'm here to seek some advice as you guys generally offer really good tips/info.

B.c I personally cant afford to open the business up myself I need these two buddies of mine, however I have done all the due diligence, paperwork, ran around etc and these two guys are just in it as "investors" in my eye.

So I want to know if I open this as an entity under a company name, can I have these two individuals as investors or as part of a board and have the restaurant under my name 100%? I do have a lawyer that will be putting the legal binding together but he charges a crazy amount per hour so I want to go in with an idea so I can finalize something.

So if i do open this as a company and have these guys as investors and share the profit accordingly, where I take 60% and 20%-20% is given to these two indivduals; is that worth while? Again I'm short on cash and dont want to risk all my money that is why I need these two guys as sole investors; however one of them wants his name to be under the business name.

So what is the best way to go abouts with this? Pls help as I need to sort this urgently, if you have any questions, pls email me at j_w_01@yahoo.com

Thxs a bunch,
J
 

toguy5252

Well-known member
Jun 22, 2009
15,978
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Get some advice from your lawyer. It may be expensive but if things don't work out you will thank him and agree that money was well spent. organization should almost certainly be by way of corporation. You can structure your partners interests through special shares which will permit you unlimited flexibility in terms of dividends, voting etc. You should definitely have a shareholders agreement.
 

danmand

Well-known member
Nov 28, 2003
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Get some advice from your lawyer. It may be expensive but if things don't work out you will thank him and agree that money was well spent. organization should almost certainly be by way of corporation. You can structure your partners interests through special shares which will permit you unlimited flexibility in terms of dividends, voting etc. You should definitely have a shareholders agreement.
And you need an accountant to look at it too.

Remember, it is now you make the deal that will govern the
business for its lifetime, good or bad.
 

Cassini

Active member
Jan 17, 2004
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You can always own the physical property of the restaurant separate from the operating company running the restaurant. If you own the property, I would definitely do that.

Other than that, the rules governing the corporation follow the share holders agreement. Just be advised that people will not give you significant sums of money without a degree of control. I would suggest hiring you as CEO, and then granting you stock based on how successful the restaurant is. Remember: If you aren't an investor, then you are just a hired gun. To own something, you need to bring an asset to the table. In this case, your knowledge might get you a percentage interest in the company, just don't expect it to be a controlling interest.
 

toguy5252

Well-known member
Jun 22, 2009
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All money of yours should go in a debt with security taken by way of GSA. may or may not be different considerations for investors.
 

great bear

The PUNisher
Apr 11, 2004
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Nice Dens
Son, if you are short of cash, you should know that restaurants generally take two to three years to generate enough profit for you too see the light at the end of the tunnel. They have a very high rate of bankruptcy.
 

Aardvark154

New member
Jan 19, 2006
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There has been good advice here but absolutely you need to speak with your lawyer.

There are a multiplicity of factors here including taxes ramifications as well as control that you need advice on. Another factor to consider are your investors going to be willing to invest if they are limited partners or the equivalent in a corporation with no say in the business decisions?

Also Great Bear is right on the money that Restaurants have a very high failure rate.
 

fuji

Banned
Jan 31, 2005
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is.gd
If you can get your money invested as secured debt that helps a bit with the high failure rate--if the business goes bust, you get the assets and can start over with new partners. This depends on whether you can turn around and start up a new business with the assets--if they have to be sold off instead, that's likely at a steep loss.

Ideally your capital goes in as debt and your labour earns a share of the profits.
 

out4fun

Active member
Jan 8, 2008
977
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If they are just investors, then they should be asking for a guaranteed rate of return,( a really big one -this is high risk!!) rather than just a percentage of profits...and they should take security up the ying-yang from you.
If they are partners, then presumably they have input, and share in the ups and downs.
If it is to be a partnership, you must spend the money and have a shareholders' agreement, with buy-sell arrangements and exit strategies. Different share classes can be used to create different returns and privileges.
Hopefully, the partners are not friends.
 

danmand

Well-known member
Nov 28, 2003
46,353
4,776
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If they are just investors, then they should be asking for a guaranteed rate of return,( a really big one -this is high risk!!) rather than just a percentage of profits...and they should take security up the ying-yang from you.
If they are partners, then presumably they have input, and share in the ups and downs.
If it is to be a partnership, you must spend the money and have a shareholders' agreement, with buy-sell arrangements and exit strategies. Different share classes can be used to create different returns and privileges.
Hopefully, the partners are not friends.
Investers will usually require convertible debentures, say at 12%, which are
convertible into equity.
 

jw01

New member
Jul 3, 2005
317
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hey guys,

thxs alot for the tips/info....

the restaurant is a franchise, so pretty much i dont want to put all my money into it, that is why im seeking these two buddies of mine to help me financially.

one of them, he wont be here to help run the business, he has his young kids who he mentioned will help but none have shown interest or come to any meetings. so im assuming he will only be financial support.

partner #2 will be working at the store with me with his wife.

so currently, i've done all the work interms of researching, due diligence and hiring an accountant/lawyer, so i want to have more control or profit sharing - in a way.

so if i do incorporate a corporation and have these two friends of mine as stockholders or investors or even partners, i want to own a higher percentage as ive done alot of work etc. also, since the franchise is being awarded to me, i want to have it under my name and have my partners included in it as well, but have my name solely on the agreement with these two partners as either "investors" and have them pay a dividend from the profit.

hopefully u guys follow what im trying to do. all the help is greatly appreciated. thxs again.

cheers,
 

toguy5252

Well-known member
Jun 22, 2009
15,978
6,111
113
hey guys,

thxs alot for the tips/info....

the restaurant is a franchise, so pretty much i dont want to put all my money into it, that is why im seeking these two buddies of mine to help me financially.

one of them, he wont be here to help run the business, he has his young kids who he mentioned will help but none have shown interest or come to any meetings. so im assuming he will only be financial support.

partner #2 will be working at the store with me with his wife.

so currently, i've done all the work interms of researching, due diligence and hiring an accountant/lawyer, so i want to have more control or profit sharing - in a way.

so if i do incorporate a corporation and have these two friends of mine as stockholders or investors or even partners, i want to own a higher percentage as ive done alot of work etc. also, since the franchise is being awarded to me, i want to have it under my name and have my partners included in it as well, but have my name solely on the agreement with these two partners as either "investors" and have them pay a dividend from the profit.

hopefully u guys follow what im trying to do. all the help is greatly appreciated. thxs again.

cheers,
Depending on who the franchisor is you will find that some are very very demanding in terms of investors/partners etc. Your lawyer should have reviewed the franchise agreement very carefully and you should insure that your lawyer has franchise experience. Most franchise agreements are very complicated and they require a particular expertise. Do not be penny wise and pound foolish. get expert help.
 

jackson01

New member
Sep 28, 2009
25
0
1
Brampton
hey bud just my 2 cents
there are two types of parternerships, i think the one suited for you will be a limited parternership under which your two buddies will be part of the business as only investors, and you will be incharge of all the aspects that come with running the business. But like everybody else is saying speaking to a lawyer should be on top of the list, before you commit to anything.
good luck man
 

chuckparker

Member
Mar 25, 2006
306
0
16
Big Mistake ...... First never get into a restaurant partnership without having a "shotgun" clause. You lawyer can explain this and it is VERY important to have. Second, how will you be paying yourself ? and how will you be paying your partner and his wife that will be working the location with you ?? make sure it is all laid out in writing.

I would never consider opening a place without having my own lawyer making sure the agreement is fair. What I mean is each guy should have their own lawyer.

I have seen a few times in similar situations where you not only loose all your money, but loose your friends too..... Be careful and make sure you can pay all the bills for at least 18 months without making a single $$$$ .
 

needinit

New member
Jan 19, 2004
1,193
1
0
You actually have one investor and one partner, so you cannot have one agreement to suit both parties.

This is getting more complicated than it seemed initially - the one partner that wishes to work there with his wife will also actively participate in the success or otherwise of the business and agreeing on other items (such as work hours for all involved) will determine how well everyone gets along. The partner will have a return based on his sweat equity as well and is not guaranteed any return except wages and potential return on the value of the business (same as you). Is this partner contributing the same amount of money as you? and are you accounting for the upfront work being done - i.e. your effot to date has some value.

When I invested in a startup some years ago I spent a lot of upfront time developing a 'partner's agreement' where we determined who had which roles (it was a manufacturing business) - I had Quality control and accounting plus others, my partner had Production and marketing amongst others for example.

We also had an agreement on how we would report to each other, inclduing managing a budget for each role, at which point we needed to agree on specific decisions ($ threshold), hours of work and vacation accural (as per any other employee role).

Of paramount importance is the exit strategy - you should always be starting a business with a view to selling it (at a profit, of course), so need to know/agree on how to execute that portion of the business plan as well.

Do you have an actual business plan, does your franchisor need to approve the partner etc?

Re the investor: he really wants x % return on his investment, paid in regular amounts. Have you agreed on that with him and does your business plan account for that?

Please note, the above items are not legal issues and you should have a firm agreement on all this (and many other items), then use the lawyer to ensure it is enforceable.
 

Perry Mason

Well-known member
Aug 20, 2001
4,683
207
63
Here
jw01:

IMHO, your comments are naive...

You can't call the shots if someone else is putting up the bucks... or, as has been said, "Who pays the piper calls the tune." :cool:

From what you have said thus far about your venture, I think you should take this advice to heart: "Bullshit walks; money talks."

Perry
 

waynor

New member
Aug 5, 2002
19
0
1
Oakville
I think you have kind of answered your own question here... Your not bringing them into this deal out of the kindness of your heart.. Your doing it because you either want to limit your losses or don't have the ability to fund the operation yourself..

The minute one partner feels his time, effort or money is worth more then his partners is usually the minute the partnership dies... The only way these things work is if your doing it for the business and can accept that the situation you find yourself in will not be fair.. If you want a fair partnership then go out and earn the money so you can call the shots and then bring in people as minority partners who just want a return on their investment and can be bought out at a later date.
 

lookin4kicks

Member
Aug 24, 2009
182
3
18
hey guys,

thxs alot for the tips/info....

the restaurant is a franchise, so pretty much i dont want to put all my money into it, that is why im seeking these two buddies of mine to help me financially.

one of them, he wont be here to help run the business, he has his young kids who he mentioned will help but none have shown interest or come to any meetings. so im assuming he will only be financial support.

partner #2 will be working at the store with me with his wife.

so currently, i've done all the work interms of researching, due diligence and hiring an accountant/lawyer, so i want to have more control or profit sharing - in a way.

so if i do incorporate a corporation and have these two friends of mine as stockholders or investors or even partners, i want to own a higher percentage as ive done alot of work etc. also, since the franchise is being awarded to me, i want to have it under my name and have my partners included in it as well, but have my name solely on the agreement with these two partners as either "investors" and have them pay a dividend from the profit.

hopefully u guys follow what im trying to do. all the help is greatly appreciated. thxs again.

cheers,
I have always found that money always beats "hardwork" the more percentage of money equals the more percentage of the business. If you can convince your partners otherwise good for you but then I would ask myself "are these the type of business partners I want?" because they don't sound sound to business smart.
 
Ashley Madison
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