How to Own Half of a Company?

Discussion in 'Growing and Managing a Business' started by gatsby, Feb 16, 2012.

  1. gatsby

    gatsby
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    I am moderately experienced in business- I have about 10 years of experience in internet marketing and own an S-corporation.

    Recently, my acupuncturist has proposed a business partnership to me. He wants to sell his health products on the internet (which works well) and eventually open up various offices throughout the country. I see the potential in the business and actually considering his offer.

    So far, we seem like a good match. And he needs me more than I need him to accomplish his goal:

    My strength/weakness: versed in internet marketing, fluent in English, connections / no product
    His strength/weakness: has a product / computer illiterate, can't speak English, no connections


    My question is this:

    I'd like to be very clear about our business terms before we start anything.
    I'd like to ask for a 50-50 partnership so I own half of the entire business. What would be the best way to structure to do so? By asking him to give me half of his stocks of his s-corp? or should we create a new corporation and be partners? or should we formulate a contract so we do profit-sharing of the profits? (but would I be entitled to the company when we sell it?) Are there any other options?

    He currently runs a practice and has an idea how he wants to execute his business, and started some branding/website construction himself.
    I don't think he's doing well with the business though, and have an impression he is bad with bookkeeping.

    Any suggestions from an experienced businessman would be greatly appreciated!
     
  2. Business Attorney

    Business Attorney
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    Given the flexibility of a limited liability company, an LLC is probably the best solution, but you need to discuss the matter with someone who can gather all of the relevant facts and discuss the pros and cons with you. No solution is perfect; there are always tradeoffs. One nice thing about an LLC is that it can basically be anything you want it to be. You can tailor the financial aspects and the management aspects to your particular situation without being bound by a rigid corporate structure of shareholders, directors and officers.

    One issue with taking stock in his current S corporation is that the receipt of stock for services (or the promise of services) is taxable under section 83 of the Internal Revenue Code. If he is not doing well, the stock may not have much value so there may not be a large tax liability, but it is something to consider.
     
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  3. jcworlditsme

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    Also, whichever option you choose, be sure to be extremely careful about who you go into a business partnership with.
     

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