1714, Best way to partner with someone who currently owns 100% of his corp?|
Posted by AmAruX, Fri Sep-28-07 07:23 AM
Hello world, sorry for the lengthy post, but thanks in advance for your consideration! Back in early 2001 I decided to become a freelance technical consultant. I hooked up with a gentleman who started out on his own in 1989 and, as of the time I started working with him, he was incorporated with four employees. Today, we have a larger office with about 10 employees and 3 consultants, and are looking at a second space and hiring at least 3 more staff in the next six months.
After working together for about six months, he asked me if I would partner with him to expand the company. I liked the idea, but suggested we wait for a year to make sure we still agreed about partnering. Well, about four years passed and we still never finalized anything on paper, although we did agree verbally to some basic ideas. In 2005, I formally joined the company as an employee with title of Vice-President, but with the understanding that I was his "partner" in the company.
He is currently the sole owner of all company stock. To complicate matters, his wife is our finance person, and recently assumed a title of VP of Finance.
Very soon, we need to formalize the details of our "partnership" taking into account some of those variables I mentioned above. Some of the scenarios we already discussed are:
1. I buy shares from him. Pro: This would be fairly straightforward and would correspond to my "ownership" % Con: Out of pocket expense for me; how do we value the stock?; the Corp pays taxes on the stock sale.
2. He issues/gives shares to me. Pro: No out of pocket expense on either side. Fairly straightforward. Con: Do I have to pay tax on the stock received? How do we agree on what percent of stock is transferred and in exchange for what (e.g. skill-set, management expertise, business development, etc.)?
3. An idea his tax planner gave us is that we could draw up a straight agreement where "only upon sale" of the company would I be entitled to x% of the selling price. Pro: No out of pocket expense except taxes on profit if we ever sell; roughly achieves the same goal as options 1 and 2; Con: I may have no formal stake in the company or listing as an officer; how does this work if he dies and remaining shares are inherited by his wife?
I'm wondering if anyone out there has been in a similar situation or has ideas about what methods (those above or others you know of) that might work best given the situation described above. I don't want to procrastinate any longer, and I'm concerned that, given his marriage to our Finance VP, along with some important new hires, that my role could become obscured as well as questions related to inheritance and succession planning. This is important since we both have young children, but he is 15 years older than me although his wife is about my age.