New business start up, Founder and Co Founder question.

Discussion in 'Starting a Business' started by DARTN, Jul 29, 2011.

  1. DARTN

    DARTN
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    Hello all, Its been a while since i have been on this forum and i need some business start up advice so i am here asking for help.

    So i am thinking of starting a new business of my own, the entire idea and the concept behind it is mine which is pretty rare or say its unique in the market so far, i have worked on its documentation, working out for the initial set up with the development team and other sales people.

    So basically i am a founder right?

    But the problem is that i needed some help in the initial investment on this, so i discussed my idea with one of my trusted workmate. So he said that fine he will invest 50% of the funds needed to get started with this project, and of course i am going to put my money on it too.

    But since he is investing 50% and i discussed it out with him, he said he would be the Co Founder. So all that he did was put 50% of the money in initial setup and agreed to help if more funds are needed ahead.

    So my question is, that title of Co Founder accurate for him? Also what would be his entire share on the profits? Or should he just be a CFO?

    I hope you understand my question. Let me know if you need any other info.
     
  2. Fergal

    Fergal
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    Are you and the other investor going to be working in the business full time. If he is going to be working in the business in addition to making the initial 50% investor, I can understand why he wants to be described as a co-founder. If I was in his shoes I would want the same.

    Getting involved with someone to set up a business is a big deal and you really should get some professional advice from a lawyer. You should also both agree and sign a partnership agreement that clarifies amongst other things your respective roles in the business, your profit share, salaries, etc.
     
  3. ArcSine

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    Fergal makes a great point that the ingredients into a new biz include not only the cash and/or labor that's been expended by the two of you to this point, but also the efforts that you'll both be contributing in the near-term future to turn the "launch" into a long-run success. Hence, your respective efforts over the next little while must also be considered as "founders" contributions. I'm not arguing for or against his referring to himself as Co-Founder; I'm just suggesting that you both consider all elements of your relative contributions in arriving at the answer.

    I don't think "Founder" and "Co-Founder" are officially-defined titles, at least not in any context I'm aware of. So whether you refer to yourselves by either or both of those descriptions is just a matter of personal opinions and mutual agreement.

    "CFO" on the other hand is indeed (the acronym for) the title of a corporate officer. "CFO" and "Co-Founder" are not mutually exclusive; one could easily be either or both.

    As to an appropriate profit-allocation ratio, that's a question whose answer turns on all the particular facts and circumstances at hand. Ultimately it'll come down to what you both agree to, but in reaching that agreement there are a number of things to evaluate. The perceived value of all non-cash contributions (e.g., all the conceptual, planning, and documentation work you mentioned); past and expected future cash infusions; relative value of personal services and expertise; value of personal contacts brought to the table; etc.

    To segue to Fergal's other point (renting an attorney who's familiar with partnerships and start-ups), a lawyer with experience in this area can help both of you to identify, and evaluate, these and other points which should be weighed in determining an appropriate profit-split percentage. Ditto for all the many other issues that should be identified when forming a partnership, and then unambiguously resolved in the Partnership Agreement. In forming a partnership, it's nearly impossible to think of all the things beforehand which need to be anticipated, and then agreed to, in order to head off the inevitable misunderstandings and disagreements down the road. But an attorney who's already been down this road many times will already know the critical issues, and will make sure that they're properly included in the Agreement.

    Best of luck with it!
     
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  4. DARTN

    DARTN
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    Thanks all for the replies. We both will be working full time in this. So far i have been doing everything on my concept including the setup but my partner said that he will also be helping ahead in sales and in expansion. If he does, then that would be a major contribution from his side. So i guess his name in the mast head as a Co Founder will stay.

    About the lawyer and agreements, i checked it with our local corporate affair firm and they said that they will be helping with the business registrations and agreements between partners and provide all the legal help and documents at a set fee.
     
  5. Fergal

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    Thanks for the update DARTN, sounds like everything is progessing for you and that business is on the right track. Good luck with it!
     

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