Small business partial ownership

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B4Xt3r
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Small business partial ownership

Post by B4Xt3r » Tue Feb 12, 2019 7:22 am

Hi All,

I may be able to buy 30-40% of partial ownership of a small business in exchange for free part-time labor for a negotiated period of time. I believe in the online educational service they intend to provide, though I have done no market research & the business right now has no revenue. I would create most of the educational content, which is crucially valuable to the company. The owner would be responsible for most of the business/account/paying the bills side at the beginning, and there might be another person for web-design.

I'm a complete novice at the small business side of things, so my question for you is, what should I be weighing in my mind? How should I go about deciding if this is worth it?

I know that I'm not giving much to go off of, which likely reflects how little I know about the process. Sorry!

Thanks as always,

-B4xt3r

riverguy
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Re: Small business partial ownership

Post by riverguy » Tue Feb 12, 2019 8:26 am

Why would you buy something in exchange for free labor that is crucially valuable to the company?

What's there to really think about? It's a startup. They have nothing. It's worth nothing right now. No one can tell you if it's worth it or not. That's a personal question based on your life and where you think the company can go.

daheld
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Re: Small business partial ownership

Post by daheld » Tue Feb 12, 2019 8:29 am

If there's no revenue, any valuation is purely speculative. It's a personal decision that I'm not sure someone else on an anonymous internet board will be able to answer for you.

How much is your time worth? How much total time will it require? Do you think your time investment will be rewarded fairly with 30-40% of whatever this company might be worth one day? That's really about all you have to go on.

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B4Xt3r
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Re: Small business partial ownership

Post by B4Xt3r » Tue Feb 12, 2019 9:15 am

Yeah, I see that the decision about whether or not to decide is largely personal. I guess what I’m asking is twofold:

(1) are there any ways to grossly estimate the value of a business at this stage?

(2) If we draw up a contract giving me partial ownership, what advice should I head? I think I would need a lawyer to look over the contract, as one obvious thing. I’m very novice at this.

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Raybo
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Re: Small business partial ownership

Post by Raybo » Tue Feb 12, 2019 9:19 am

For me, the answer would come down to this: Will you be creating new material or adapting existing material?

If you are adapting material you already have, then it gives you another way to profit off work you've done previously. I would see it like writing a book from a class you teach or teaching a class from a book you've written.

If you are creating entirely new material, then not only is this much more work, but the material, itself, is untested and may not work well.

You are obviously aware that this is endeavor is entirely speculative and that you might never get compensated for the work you are doing.

Things to consider:

You are essentially forming a partnership with the current owner. Partnerships mix money and opinion in very tricky ways. I, myself, would never again have a business partner as I found it both frustrating and sub-optimal. Things went much better when there's only one person making the decisions. How well do you know the current owner and his/her goals, plans, ability, and willingness to keep at it under duress?

How will you eventually get any money out of this business? It is always good to know your exit strategy when investing.

Is this a corporation or a sole-proprietorship? What liability will you have for business debts and other risks?

Will outside investors be needed? If so, your ownership percentage will suffer.

There are lots of other questions I would investigate, but these give you some ideas of where to start.
No matter how long the hill, if you keep pedaling you'll eventually get up to the top.

runner540
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Re: Small business partial ownership

Post by runner540 » Tue Feb 12, 2019 9:22 am

B4Xt3r wrote:
Tue Feb 12, 2019 9:15 am
Yeah, I see that the decision about whether or not to decide is largely personal. I guess what I’m asking is twofold:

(1) are there any ways to grossly estimate the value of a business at this stage?

(2) If we draw up a contract giving me partial ownership, what advice should I head? I think I would need a lawyer to look over the contract, as one obvious thing. I’m very novice at this.

1. No revenue, no assets? No way to value it.
2. You want to discuss with your lawyer: protection against involuntary dilution (if more shares are sold to raise money in the future you want some say;
you want the same class as majority owner (if you build the business, you don't want majority owner to start paying herself dividends while giving yoi nothing) and I'm sure there are lots of other points that lawyers and VC investors would look for.
Need to address who owns the IP you create for the Company.
Etc...

Topic Author
B4Xt3r
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Re: Small business partial ownership

Post by B4Xt3r » Tue Feb 12, 2019 8:04 pm

Thanks, so this is sounding like something that I would need to seek professional help from because of my total lack of knowledge.

So...the question has become how do I select a qualified lawyer? (State is MA, if that makes a difference.)

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8foot7
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Re: Small business partial ownership

Post by 8foot7 » Tue Feb 12, 2019 8:35 pm

A business with no money and no assets is worthless. That’s an exact valuation, no guesstimating needed.

Topic Author
B4Xt3r
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Re: Small business partial ownership

Post by B4Xt3r » Wed Feb 13, 2019 9:47 am

8foot7 wrote:
Tue Feb 12, 2019 8:35 pm
A business with no money and no assets is worthless. That’s an exact valuation, no guesstimating needed.
Probably even negative worth at the moment, since there are carrying costs. That said, an idea has to be worth something?

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8foot7
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Re: Small business partial ownership

Post by 8foot7 » Wed Feb 13, 2019 9:53 am

B4Xt3r wrote:
Wed Feb 13, 2019 9:47 am
8foot7 wrote:
Tue Feb 12, 2019 8:35 pm
A business with no money and no assets is worthless. That’s an exact valuation, no guesstimating needed.
Probably even negative worth at the moment, since there are carrying costs. That said, an idea has to be worth something?
Ideas are a dime or less a dozen. Just search the Internet for "business ideas." There are plenty out there. It's the execution that matters and where the value is created.

Dottie57
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Re: Small business partial ownership

Post by Dottie57 » Wed Feb 13, 2019 9:57 am

Is there a business plan? Are there any monetary controls. Will you have access to business books? Do you know how much it will cost to run the business for a year?

Good luck.

WildBill
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Re: Small business partial ownership

Post by WildBill » Wed Feb 13, 2019 9:58 am

Howdy

From reading this it appears you would be creating all of the IP for the business, thus most of the future value, for a minority interest.

Why would you want to do that?

W B
"Through chances various, through all vicissitudes, we make our way." Virgil, The Aeneid

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B4Xt3r
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Re: Small business partial ownership

Post by B4Xt3r » Wed Feb 13, 2019 10:17 am

Dottie57 wrote:
Wed Feb 13, 2019 9:57 am
Is there a business plan? Are there any monetary controls. Will you have access to business books? Do you know how much it will cost to run the business for a year?

Good luck.
There is a tentative business plant, and I would require full acess to all records in the contract. I think the business costs less than $1,000 per year if I work for free.

Topic Author
B4Xt3r
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Re: Small business partial ownership

Post by B4Xt3r » Wed Feb 13, 2019 10:18 am

WildBill wrote:
Wed Feb 13, 2019 9:58 am
Howdy

From reading this it appears you would be creating all of the IP for the business, thus most of the future value, for a minority interest.

Why would you want to do that?

W B
This is a fair point, and my reason (at the moment) is that I do not have the skills on my own to accomplish the website, etc. I also think that I’ll enjoy working with the business owner.

Perhaps a fair position, if I am creating most of the IP, is to ask for 1% less ownership than the main owner? (Essentially al but a controlling fraction.)

smitcat
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Re: Small business partial ownership

Post by smitcat » Wed Feb 13, 2019 10:40 am

B4Xt3r wrote:
Wed Feb 13, 2019 10:17 am
Dottie57 wrote:
Wed Feb 13, 2019 9:57 am
Is there a business plan? Are there any monetary controls. Will you have access to business books? Do you know how much it will cost to run the business for a year?

Good luck.
There is a tentative business plant, and I would require full acess to all records in the contract. I think the business costs less than $1,000 per year if I work for free.
The business will cost less than $1,000 per year.
What are your estimated costs for these items within that $1,000:
- legal
- accounting/filing
- marketing/creative
- sales
- purchase of items (computers, software, competitors docs, etc)
- liability and insurances
- patents and trademarks
- T & E

What is your estimate for your costs when working for free:
- legal
- accounting
- liability
- healthcare
- purchases to support project
- transportation
- retirement
- disability
- travel and entertainment

These are some of the many categories to look at for present and future costs.

knightrider
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Re: Small business partial ownership

Post by knightrider » Wed Feb 13, 2019 10:47 am

8foot7 wrote:
Wed Feb 13, 2019 9:53 am
Ideas are a dime or less a dozen. Just search the Internet for "business ideas." There are plenty out there. It's the execution that matters and where the value is created.
I agree. Too many people have this Hollywood view of business where idea is what counts.. From what I read, this business is worth nothing . Probably negative after they pay a lawyer $$$$ to tell them the same thing.. Plus their opportunity cost...

smitcat
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Re: Small business partial ownership

Post by smitcat » Wed Feb 13, 2019 10:49 am

B4Xt3r wrote:
Wed Feb 13, 2019 10:18 am
WildBill wrote:
Wed Feb 13, 2019 9:58 am
Howdy

From reading this it appears you would be creating all of the IP for the business, thus most of the future value, for a minority interest.

Why would you want to do that?

W B
This is a fair point, and my reason (at the moment) is that I do not have the skills on my own to accomplish the website, etc. I also think that I’ll enjoy working with the business owner.

Perhaps a fair position, if I am creating most of the IP, is to ask for 1% less ownership than the main owner? (Essentially al but a controlling fraction.)
"This is a fair point, and my reason (at the moment) is that I do not have the skills on my own to accomplish the website, etc. I also think that I’ll enjoy working with the business owner."

There are a few resources to learn about the areas you have not been introduced to both for yourself and for the potential future deal. I do not know exactly where you are but these resources and mostly free and likely within your immediate area:
- your local SBDA is likely well staffed with one on one and group opportunities (offshoot classes as well)
- SCORE, likely well regarded retired business folks which in many cases have the same business area knowledge
- local community college, likely group seminars and short courses on business and entrepreneurship
- local funding groups who have outlets to make contacts in the industry

We have had our best exeperieces with the SBDA but have had good results with all of the others at one point in time or another.
We have attended two SBDA centers in our area , both within 10 miles of us.

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knpstr
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Re: Small business partial ownership

Post by knpstr » Wed Feb 13, 2019 10:50 am

How much are they asking for you to buy 40% of the company. That will tell you "their" valuation (which isn't necessarily correct) of the business.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

Topic Author
B4Xt3r
Posts: 471
Joined: Thu Sep 29, 2016 5:56 am

Re: Small business partial ownership

Post by B4Xt3r » Wed Feb 13, 2019 8:20 pm

smitcat wrote:
Wed Feb 13, 2019 10:40 am
B4Xt3r wrote:
Wed Feb 13, 2019 10:17 am
Dottie57 wrote:
Wed Feb 13, 2019 9:57 am
Is there a business plan? Are there any monetary controls. Will you have access to business books? Do you know how much it will cost to run the business for a year?

Good luck.
There is a tentative business plant, and I would require full acess to all records in the contract. I think the business costs less than $1,000 per year if I work for free.
The business will cost less than $1,000 per year.
What are your estimated costs for these items within that $1,000:
- legal
- accounting/filing
- marketing/creative
- sales
- purchase of items (computers, software, competitors docs, etc)
- liability and insurances
- patents and trademarks
- T & E

What is your estimate for your costs when working for free:
- legal
- accounting
- liability
- healthcare
- purchases to support project
- transportation
- retirement
- disability
- travel and entertainment

These are some of the many categories to look at for present and future costs.
I have none.

Topic Author
B4Xt3r
Posts: 471
Joined: Thu Sep 29, 2016 5:56 am

Re: Small business partial ownership

Post by B4Xt3r » Wed Feb 13, 2019 8:21 pm

smitcat wrote:
Wed Feb 13, 2019 10:49 am
B4Xt3r wrote:
Wed Feb 13, 2019 10:18 am
WildBill wrote:
Wed Feb 13, 2019 9:58 am
Howdy

From reading this it appears you would be creating all of the IP for the business, thus most of the future value, for a minority interest.

Why would you want to do that?

W B
This is a fair point, and my reason (at the moment) is that I do not have the skills on my own to accomplish the website, etc. I also think that I’ll enjoy working with the business owner.

Perhaps a fair position, if I am creating most of the IP, is to ask for 1% less ownership than the main owner? (Essentially al but a controlling fraction.)
"This is a fair point, and my reason (at the moment) is that I do not have the skills on my own to accomplish the website, etc. I also think that I’ll enjoy working with the business owner."

There are a few resources to learn about the areas you have not been introduced to both for yourself and for the potential future deal. I do not know exactly where you are but these resources and mostly free and likely within your immediate area:
- your local SBDA is likely well staffed with one on one and group opportunities (offshoot classes as well)
- SCORE, likely well regarded retired business folks which in many cases have the same business area knowledge
- local community college, likely group seminars and short courses on business and entrepreneurship
- local funding groups who have outlets to make contacts in the industry

We have had our best exeperieces with the SBDA but have had good results with all of the others at one point in time or another.
We have attended two SBDA centers in our area , both within 10 miles of us.
SBDA stands for what? Sorry, I'm not familiar at all.

Topic Author
B4Xt3r
Posts: 471
Joined: Thu Sep 29, 2016 5:56 am

Re: Small business partial ownership

Post by B4Xt3r » Wed Feb 13, 2019 8:22 pm

knpstr wrote:
Wed Feb 13, 2019 10:50 am
How much are they asking for you to buy 40% of the company. That will tell you "their" valuation (which isn't necessarily correct) of the business.
Interesting thought, thanks.

simas
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Re: Small business partial ownership

Post by simas » Wed Feb 13, 2019 8:33 pm

B4Xt3r wrote:
Tue Feb 12, 2019 7:22 am

I'm a complete novice at the small business side of things, so my question for you is, what should I be weighing in my mind? How should I go about deciding if this is worth it?
I re-read your post , saw the note on no revenue, so that answers a lot of questions.

Basically, whoever it is offers you to form a partnership - their skills that you do not have plus your skills that they do not have together to get 1+1 to be more than 2. Normal, and exactly why partnerships are formed when skillsets of partners play well off each other and complement each other.

How such partnership is set up , what the terms are, how it would be terminated (by either side), etc - all items for attorneys to review BEFORE you get into this.

if the other side wants to move along and is serious, and you are willing to spend few K on legal review - may be. if they other side is not serious ('we will take care of you' category) and/or you are not serious about it enough to spend money on attorney review then that answers all other questions.

smitcat
Posts: 4194
Joined: Mon Nov 07, 2016 10:51 am

Re: Small business partial ownership

Post by smitcat » Wed Feb 13, 2019 9:05 pm

B4Xt3r wrote:
Wed Feb 13, 2019 8:21 pm
smitcat wrote:
Wed Feb 13, 2019 10:49 am
B4Xt3r wrote:
Wed Feb 13, 2019 10:18 am
WildBill wrote:
Wed Feb 13, 2019 9:58 am
Howdy

From reading this it appears you would be creating all of the IP for the business, thus most of the future value, for a minority interest.

Why would you want to do that?

W B
This is a fair point, and my reason (at the moment) is that I do not have the skills on my own to accomplish the website, etc. I also think that I’ll enjoy working with the business owner.

Perhaps a fair position, if I am creating most of the IP, is to ask for 1% less ownership than the main owner? (Essentially al but a controlling fraction.)
"This is a fair point, and my reason (at the moment) is that I do not have the skills on my own to accomplish the website, etc. I also think that I’ll enjoy working with the business owner."

There are a few resources to learn about the areas you have not been introduced to both for yourself and for the potential future deal. I do not know exactly where you are but these resources and mostly free and likely within your immediate area:
- your local SBDA is likely well staffed with one on one and group opportunities (offshoot classes as well)
- SCORE, likely well regarded retired business folks which in many cases have the same business area knowledge
- local community college, likely group seminars and short courses on business and entrepreneurship
- local funding groups who have outlets to make contacts in the industry

We have had our best exeperieces with the SBDA but have had good results with all of the others at one point in time or another.
We have attended two SBDA centers in our area , both within 10 miles of us.
SBDA stands for what? Sorry, I'm not familiar at all.
SBDA - small business development agency, in NY there are many of them.
I see you might be in Mass. , I looked up the equivalent there on line...
https://www.sba.gov/offices/district/ma/boston

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