Friends working on hobby that may/may not develop into business

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Topic Author
B4Xt3r
Posts: 487
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Friends working on hobby that may/may not develop into business

Post by B4Xt3r » Thu Feb 13, 2020 7:11 am

Hi All,

I'm considering working with some edit:friends working on hobby at the moment, but that may/may not develop into business.It's building a webpage with a decent chunk of IP but little to no other assets/carrying costs. If the website takes off, we likely would incorporate and attempt to monetize it later. That's likely 2-3 years away.

I hesitate slightly to put multi-hundreds of hours into the project without any formal agreements about who owns what. Are there any low-lawyer cost agreements that can guide our work together?

Any other feedback?

Thanks,

-b4xt3r
Last edited by B4Xt3r on Thu Feb 13, 2020 7:29 am, edited 1 time in total.

bampf
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Re: Friends working on hobby that may/may not develop into business

Post by bampf » Thu Feb 13, 2020 7:17 am

B4Xt3r wrote:
Thu Feb 13, 2020 7:11 am
Hi All,

I'm considering working with some fiends working on hobby at the moment, but that may/may not develop into business.It's building a webpage with a decent chunk of IP but little to no other assets/carrying costs. If the website takes off, we likely would incorporate and attempt to monetize it later. That's likely 2-3 years away.

I hesitate slightly to put multi-hundreds of hours into the project without any formal agreements about who owns what. Are there any low-lawyer cost agreements that can guide our work together?

Any other feedback?

Thanks,

-b4xt3r
Freudian slip? If they are fiends, get a lawyer. If they are friends, incorporate. Takes like 5 minutes. Forces you to decide things up front. And, it gives you a liability shield. So, either way, sort it before you start.

jucor
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Re: Friends working on hobby that may/may not develop into business

Post by jucor » Thu Feb 13, 2020 7:18 am

B4Xt3r wrote:
Thu Feb 13, 2020 7:11 am
Hi All,

I'm considering working with some fiends working on hobby at the moment, but that may/may not develop into business.It's building a webpage with a decent chunk of IP but little to no other assets/carrying costs. If the website takes off, we likely would incorporate and attempt to monetize it later. That's likely 2-3 years away.

I hesitate slightly to put multi-hundreds of hours into the project without any formal agreements about who owns what. Are there any low-lawyer cost agreements that can guide our work together?

Any other feedback?

Thanks,

-b4xt3r
Given that you write that they're fiends, not friends, major caution is advised! :wink:

In all seriousness, you are on the right track with your concerns -- figuring out ownership and how to calculate it going forward (ideas vs. labor vs. capital) now is key. Worth spending a bit of money if you think there's any chance at all of this being successful.

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

Re: Friends working on hobby that may/may not develop into business

Post by B4Xt3r » Thu Feb 13, 2020 7:32 am

bampf wrote:
Thu Feb 13, 2020 7:17 am
B4Xt3r wrote:
Thu Feb 13, 2020 7:11 am
Hi All,

I'm considering working with some fiends working on hobby at the moment, but that may/may not develop into business.It's building a webpage with a decent chunk of IP but little to no other assets/carrying costs. If the website takes off, we likely would incorporate and attempt to monetize it later. That's likely 2-3 years away.

I hesitate slightly to put multi-hundreds of hours into the project without any formal agreements about who owns what. Are there any low-lawyer cost agreements that can guide our work together?

Any other feedback?

Thanks,

-b4xt3r
Freudian slip? If they are fiends, get a lawyer. If they are friends, incorporate. Takes like 5 minutes. Forces you to decide things up front. And, it gives you a liability shield. So, either way, sort it before you start.
Ha. Meant friends.

Right now the project is incorporated, but the current owner wants to shut it down for a few years and build up the website w/o the hassle of being a business. The business has no revenue, but we all like the idea and its fun to work on. Maybe someday it'll turn a profit.

I tend to at the moment at-least, agree with not being a business for a few years, if we can have some framework for deciding rights to IP.

niceguy7376
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Re: Friends working on hobby that may/may not develop into business

Post by niceguy7376 » Thu Feb 13, 2020 8:19 am

What benefits does it offer to shut down a business for a few years and then open it again later?

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Sandtrap
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Re: Friends working on hobby that may/may not develop into business

Post by Sandtrap » Thu Feb 13, 2020 9:30 am

Options:
Decide:
1. Do it for fun, together, with no expectation of either for returns. (stay friends)
2. Do it for business/money with expectation of returns. (risk friendship)
One year from now, decide again, etc, etc.

j :happy
Wiki Bogleheads Wiki: Everything You Need to Know

Dottie57
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Re: Friends working on hobby that may/may not develop into business

Post by Dottie57 » Thu Feb 13, 2020 10:37 am

Sandtrap wrote:
Thu Feb 13, 2020 9:30 am
Options:
Decide:
1. Do it for fun, together, with no expectation of either for returns. (stay friends)
2. Do it for business/money with expectation of returns. (risk friendship)
One year from now, decide again, etc, etc.

j :happy
I like this. Keep deciding at periodic intervals. Realize that what you put in for costs may never be recouped. Includes time, money, ideas. If this is web site that takes off your infrastructure may need to change.

Good luck on your adventure.

dknightd
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Re: Friends working on hobby that may/may not develop into business

Post by dknightd » Thu Feb 13, 2020 10:43 am

You and your friends have to decide. Is this a hobby, or is this something you expect make money on, perhaps one day?

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Hayden
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Re: Friends working on hobby that may/may not develop into business

Post by Hayden » Thu Feb 13, 2020 11:32 am

niceguy7376 wrote:
Thu Feb 13, 2020 8:19 am
What benefits does it offer to shut down a business for a few years and then open it again later?
+1
You will have some expenses to do this. The business can deduct them. Why shut down the business and forego the deduction?

Topic Author
B4Xt3r
Posts: 487
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Re: Friends working on hobby that may/may not develop into business

Post by B4Xt3r » Thu Feb 13, 2020 8:38 pm

niceguy7376 wrote:
Thu Feb 13, 2020 8:19 am
What benefits does it offer to shut down a business for a few years and then open it again later?
Reduce cost for the interim years.

Topic Author
B4Xt3r
Posts: 487
Joined: Thu Sep 29, 2016 5:56 am

Re: Friends working on hobby that may/may not develop into business

Post by B4Xt3r » Thu Feb 13, 2020 8:40 pm

Sandtrap wrote:
Thu Feb 13, 2020 9:30 am
Options:
Decide:
1. Do it for fun, together, with no expectation of either for returns. (stay friends)
2. Do it for business/money with expectation of returns. (risk friendship)
One year from now, decide again, etc, etc.

j :happy
I think they are learning towards this. I'm just worried about how to decide who owns what should a market opportunity arise that we wish to pursue.

Topic Author
B4Xt3r
Posts: 487
Joined: Thu Sep 29, 2016 5:56 am

Re: Friends working on hobby that may/may not develop into business

Post by B4Xt3r » Thu Feb 13, 2020 8:40 pm

Dottie57 wrote:
Thu Feb 13, 2020 10:37 am
Sandtrap wrote:
Thu Feb 13, 2020 9:30 am
Options:
Decide:
1. Do it for fun, together, with no expectation of either for returns. (stay friends)
2. Do it for business/money with expectation of returns. (risk friendship)
One year from now, decide again, etc, etc.

j :happy
I like this. Keep deciding at periodic intervals. Realize that what you put in for costs may never be recouped. Includes time, money, ideas. If this is web site that takes off your infrastructure may need to change.

Good luck on your adventure.
I realize that; my worry is how to divy up ownership if we are all coworking on a hobby.

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

Re: Friends working on hobby that may/may not develop into business

Post by B4Xt3r » Thu Feb 13, 2020 8:42 pm

dknightd wrote:
Thu Feb 13, 2020 10:43 am
You and your friends have to decide. Is this a hobby, or is this something you expect make money on, perhaps one day?
Why can't it be both?

petulant
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Re: Friends working on hobby that may/may not develop into business

Post by petulant » Thu Feb 13, 2020 8:43 pm

B4Xt3r wrote:
Thu Feb 13, 2020 8:38 pm
niceguy7376 wrote:
Thu Feb 13, 2020 8:19 am
What benefits does it offer to shut down a business for a few years and then open it again later?
Reduce cost for the interim years.
That's not how it works. Turn it into a LLC and deduct the losses over the 2-3 years. The deduction should eat any extra administrative costs.

Topic Author
B4Xt3r
Posts: 487
Joined: Thu Sep 29, 2016 5:56 am

Re: Friends working on hobby that may/may not develop into business

Post by B4Xt3r » Thu Feb 13, 2020 8:44 pm

Hayden wrote:
Thu Feb 13, 2020 11:32 am
niceguy7376 wrote:
Thu Feb 13, 2020 8:19 am
What benefits does it offer to shut down a business for a few years and then open it again later?
+1
You will have some expenses to do this. The business can deduct them. Why shut down the business and forego the deduction?
Because shutting down the business has no revenue (so far as I know).

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Sandtrap
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Re: Friends working on hobby that may/may not develop into business

Post by Sandtrap » Thu Feb 13, 2020 8:50 pm

B4Xt3r wrote:
Thu Feb 13, 2020 8:40 pm
Dottie57 wrote:
Thu Feb 13, 2020 10:37 am
Sandtrap wrote:
Thu Feb 13, 2020 9:30 am
Options:
Decide:
1. Do it for fun, together, with no expectation of either for returns. (stay friends)
2. Do it for business/money with expectation of returns. (risk friendship)
One year from now, decide again, etc, etc.

j :happy
I like this. Keep deciding at periodic intervals. Realize that what you put in for costs may never be recouped. Includes time, money, ideas. If this is web site that takes off your infrastructure may need to change.

Good luck on your adventure.
I realize that; my worry is how to divy up ownership if we are all coworking on a hobby.
It can kind of go like this:
1
If you treat it as a business venture, which is fine and fun, then go about it correctly, create seperate financial accounts, don't commingle funds with personal cash, etc, do taxes, write off your start up costs, etc, as you can.
2
Doing this actually tends to increase the odds of success because your focus from the get go is to make it a business venture, so all thoughts and energy are put into it, also commitement.
3
You divy up ownership 50/50. Keep track of who puts in what, and there's an equal effort.
It would be prudent to think that if things are not 50/50 in effort and personal investment, then there will be discords and certainly things need to be put into writing.
4
OTOH: if you go at it too seriously with an LLC, contracts, expectations, you can suck the life and passion out of the effort as well as strain a friendship. So, tread carefully. Remember to have fun. Because when the fun stops, the bickering starts.

j :happy
Wiki Bogleheads Wiki: Everything You Need to Know

ElJefeDelQueso
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Re: Friends working on hobby that may/may not develop into business

Post by ElJefeDelQueso » Fri Feb 14, 2020 5:35 pm

B4Xt3r wrote:
Thu Feb 13, 2020 7:11 am
Hi All,

I'm considering working with some edit:friends working on hobby at the moment, but that may/may not develop into business.It's building a webpage with a decent chunk of IP but little to no other assets/carrying costs. If the website takes off, we likely would incorporate and attempt to monetize it later. That's likely 2-3 years away.

I hesitate slightly to put multi-hundreds of hours into the project without any formal agreements about who owns what. Are there any low-lawyer cost agreements that can guide our work together?

Any other feedback?

Thanks,

-b4xt3r
Would caution, from personal experience, business can and frequently does destroy friendships. Especially if everything is not in writing and all expectations are not understood and formalized before the first dollar (or debt) appears. Personally would not go into business with a friend I valued.

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