Post: #1

I have been working on a potential business and one of the people (call him Jason) who I thought would be a good partner is showing signs of flakiness. He does have a ton of leads and likes to talk. I think he fills a key role but he isn't the greatest team player. But I have known for about a year, so I know what I am getting vs a total stranger.

There are two other partners and I plan on giving them the same equity. Jason would get a sales commission. I am going to make everyone sign a buyout clause. I have not figured the dollar amount yet. I see this as a way to exert pressure if Jason does not keep plugging away. If things go great I won't complain, but if he starts slacking, I would be pissed that he was still making money off my idea and money invested.

A friend of mine was saying that even though he signs it and I buy him out, he can cry about how unfair it is, etc. and sue over it. But he hasn't done anything special so far, he has done things that I could have done if I took the time to do it. His value is really in his contacts and salesmanship.

Any advice or do you know if a person can sue even though you have a contract with a dollar amount? I know anyone can use, but sue with a reasonable chance of winning? This would be in California.

I'd be open to another structure (like a larger commission and no equity but this dude is pretty sensitive (as I have learned lately). I could just be asshole and give him nothing, since he has not done much yet, but that still opens a can of worms and isn't cool. I am just thinking of the best way to protect myself in the event he just sucks or slacks too much.

Thanks so much for your time.

Post: #2

The easiest way is to buy them out based on current year P&L based on the earnings per share. If they are opposed to that, then the prices have to be renegotiated.

If your are the major share holder it might be easier to suggest and pull this off.

Generally, equal sharing is not encouraged as the decision maker will not have a say when there are crucial ones to be made.

P/s: for Jason, if he is flaky, a nice slice of sales commission would be really worth it as he has leads.

Post: #3

A year is an awful long length of rope to give someone to prove themselves. I would do whatever you can to cut him out 100%, it sounds like you dont like him and there is no reason to keep someone around you dont like who doesnt produce. Lawyer up and be aggressive in your offer and make him go away. Maybe he can make intro's for you, but a connector is certainly not a business partner. Put him on straight commission, and create a referral based fee he can make if those intro's turn into clients, as an independent consultant and not a part of your baby. A person can have the greatest rolodex, background and mouth in the world, but unless he can close or intro with it, its pretty much worthless. I see this all the time.

Post: #4

Good points guys.

It is an internet driven business (getting to beta testing soon). He just happens to know a lot of people who could use the service. Problem with straight comission is how to figure out what lead was his and what was just someone hearing about it and joining themselves.

The other issue is finding a c good customer service software/plugin thingy (ya - I am not the technical person) to be able to make sure he is handling all the customer interactions on a timely basis.

But I believe that a person needs to keep his end of a bargain and when I first started thinking about this idea, I ran it by him and we were supposed to work together on it. But he couldn't handle the internet development, etc. So I had to bring someone in and eat into what I was sort of thinking of giving him. But he wants to be an artist and is working on being discovered so I am just concerned he totally checks out during the day to do his art stuff instead of promote the business and if his art takes off he may spend his time to do that only and expect some continued returns (which would piss me off).

So I am just trying to find a way to limit the potential damage. Yes, I am the majority owner and nothing has been signed by anyone yet.

Post: #5

Get a good lawyer to write up the agreement. It'll hold up in court. Specify in the agreement that disputes will be done through arbitration (saves time and legal fees).

Your CA lawyer can advise best, but you may even want to try a Delaware company for the setup since their courts are efficient and very business-friendly.

Post: #6

What preexisting oral agreement or understanding do you guys have?

Let me see if I have this straight. You want to start really running the business at this point with three partners and Jason, and have your operating agreements/stock agreements/employment contracts contain a buyout clause so you can get rid of him in the future? Or do you want to get rid of him now and ensure he doesn't sue?

Honestly - speaking on both the business level and as an entrepreneurial business lawyer here - you're probably better off jettisoning any potential problems NOW rather than dealing with them down the road.

The easiest method for the former, should you go that route, might be to cut him, draft a buyout agreement up until this point that waives claims related to the business but compensates him for whatever pseudoequity he deserves, and then rehire him through the organization you set up on commission. Going forward, your agreements should have mandatory arbitration clauses, but these are especially tricky in CA due to the mess of arbitration waiver law after Discover Bank and Concepcion. One way to handle it is through post-hire voluntarily signed (as in not mandatory to work there) mandatory (as in must participate in to resolve disputes) binding arbitration.

Post: #7

Thanks for the comments.

Business is still in development, and he has done very little from a work perspective. He wasn't able to do certain things as I had hoped and I had to find someone who could.

We are about to start testing.

We have nothing in writing and from the idea, to cash invested for development and all strategic ideas have been mine. And can be documented through emails and witnesses (I am not concerned with my other partners, they are hard working and honest).

My concern is that he will spend all day writing (he wants to be a director and be discovered), rather than working on promoting and generating sales. He has a project that he has been working on that is starting to gain a little traction (I am happy for him). But I don't need him not working on this business. But he has a lot of contacts to push our service to.

lurker good questions

Quote:have your operating agreements/stock agreements/employment contracts contain a buyout clause so you can get rid of him in the future? Or do you want to get rid of him now and ensure he doesn't sue?

I just want him to work hard and not make me wonder about his commitment, but if he starts to waffle, it isn't fair to others for him to get paid if he is just slacking. Ideally he shouldn't have equity but a sales commission that disappears if he gets fired I guess. But I don't want to consider him an employee. Maybe he should start a company that focuses on sales and he just gets a commission.

I want him for his salesmanship, I don't want him if he starts slacking. I am not sure the ideal approach. But nothing has been signed yet. Could kick him to the curb now, but I know we will never speak again and he may try and sue though he doesn't have a dime to his name.

Post: #8

This is a great learning opportunity for other partnerships. Do keep us updated OP.

I have always viewed partnerships with equal weighing to a marriage. The ends always have dire consequences like a messy divorce.

That's why I always have a "pre-nup" for my biz partnerships.

Post: #9

A salesman isnt a partner, and it is an online business with no real way (that you are currently aware of) of tracing memberships to Jason. Hire an SEO guy to draft an SEO plan for you and do it yourself or hire a VA to implement it for you. Never ever ever give away equity just because. It seems like youre that type of personality that HAS to have people like you. Such personalities never succeed in business. Youve got 3 partners already and want to bring this Jason on because you feel you owe him something despite no revenues being made for this business. $$ = ownership. Revenue = Ownership. Youve got no business just a concept, and youre already trying to give it all away.

For someone not trying to fail in business, I would recommend Vested Interest. Especially when peoples contributions are not monetary but a special skill set or "work that they put into the business." Basically with vested interest everyone gets a certain amount of % ownership after every year. That way if youre forced to fire someone in just under 1 year, they never get more than your vested interest amount. So if there are 3 partners and vested interest is 5% equity, then after 1 year each partner will have 5%. if 1 gets fired or forced out before the first year is up he makes off with no more than 5% of the company.