Many societies are born where one person places the necessary capital and the other contributes his knowledge in the business or his work.
It is natural that it be so and it is very good; however, the definition of shareholding can become difficult and even generate problems in the future, which may place the relationship of partners in a difficult situation and even the existence of the company.
In previous articles I have talked about topics like this, and I even wrote an article about these “typical” fifty percent societies, which are both created with the aim of being “fair”.
But today I want to answer by means of an article the query of one of you, a query that coincidentally deals with this case where one partner contributes capital and the other contributes his work and knowledge.
As usual, in these cases, I change the name, the country and some data to protect the confidentiality of the person who writes. Says so:
Mr. Enrique:
Thank you very much for the information you send us, it is very valuable to us.
First time I will trust to tell my business experience. The aim is that your advice as a business advisor helps us not to fail.
My husband and I have always been in business.
We started from the bottom and we were doing well. Initially, our first business was to make homemade ice cream. We looked for youngsters to sell them themselves in the community.
So we put together a capital and then, as it was only due to the hot season, we decided to change direction and set up a chicken farm, small. I have a lot of acceptance. I think it was the little chicken with the golden eggs.
This business allowed us to acquire properties.
It was then when we thought of another business that required much more investment and we made a loan in the bank and thus we installed a good breed pig farm. It quickly began to make a profit; But we saw that competition with large companies was also strong. These companies sent prices to the ground and made us stagger. Added to that, a disease came to the pigs that we could not control. Every day they died a lot. We had loans in the bank and we started to fall behind in payments.
We had to start finishing off everything we acquired over many years. We lost everything.
The chicken business was no longer performing as before. We had neglected it. We did not give maintenance, we did not modernize it and many bigger errors, excuse my expression, but it was the worst joke of our life, we entered a stage of depression.
The other night, we were watching her 30 Mistakes conference online and my husband was saying to me: "You know how much we would have saved if someone had told us all this at the time." We were especially struck by the case of Rodrigo, the man who lost everything at age 72.
But thank God we as a couple were still united in these difficult times and talking to my husband we decided to start again. We had to start by tweaking the old furniture from the chicken sale; because we did not have to buy tables and the only thing we could offer was a good seasoning that remains in the memory of many clients.
It is difficult to recover the clientele they have already opened, other more modern and beautiful businesses but there we gave the business again, with very little profit margin for people to go for the price and realize that the flavor they were used to has returned and if we get up.
Then a friend suggested that we enter into partnership to put on a much larger chicken sale. He offered that he lent the capital without interest for machinery, furniture, rental of the premises, etc. We were in charge of managing the project, we put knowledge, business management, all our experience. Each month the loan would be repaid and paid in full, we would be 50/50 members. In the meantime, we would not receive any payment, salary, or profits.
We accepted the proposal, because we did not have access to a loan at the bank.
That's how it went. I paid him every month, until we finished canceling 100%.
I must tell you that business is fine. We have passed the first stage. It has good acceptance. It has a standardized flavor, has a clientele and has a recognized name.
Now I consider that another stage is coming, to grow and to rethink the rules of society. My partner recovered the money he loaned and owns half.
My query is:
Should he now receive profits and also a salary? To date we have never received anything, our profit, so to speak, is that we own the other half. Well that was our agreement; but from here on out how would it be? My husband is in charge of the business of purchasing, quality control (he prepares the preparation so that no worker learns) and it remains a secret of the house, that has value because we take many tests to standardize it. It is also in charge of personnel management.
I support it with the documentation, to control tonnages of income and expenses, personnel payments, tax payments and I report all that documentation to my partners, Just in two weeks we will have a meeting to define all this. I would like, please, to guide me how this society should be rethought, being as fair as possible. There are!
I forgot to tell him that the little golden egg is alive again we continue with that business too.
I thank you for the advice and guidance you can give me. Because, as you said in the conference of that young Costa Rican: "I don't want to make the same mistakes again."
Does this story seem familiar to you? Have any of you been through a similar situation? Have they failed like this couple and tried again?
This story moves me, because I have seen many of these stories during these thirty years accompanying business men and women.
I have seen many people fall and rise again.
How to do it? Without a doubt, with a lot of guts, a lot of energy, persistence and, as one of the people who write to us would say: “being very stubborn”.
I did want to write the whole story, because the story is a sample of the entrepreneurial spirit of this couple. They did not give up.
The consultation that she makes arises from the incorporation of an investment partner. The way the company agreed, is not what I would usually have recommended; but it seems that it turned out well. She did not explain, who writes, if they signed any type of agreement in writing, if it was a transfer of shares from the beginning, nor does it mention how they maintained themselves during this time without receiving wages from this business.
This was my response:
The information you offer me is not enough to advise you correctly.
But I will offer you some ideas for you to take into account when you have the meeting with your partners.
I am missing a lot of information:
• You say that the partner loaned money without interest and that he has already received the entire amount invested.
• I am not sure if he has also worked on the project during all this time. I think so; but i am not clear if you have received a salary.
• I understand that you have both worked and that you have not received a salary. How many months have they worked, how much would they have earned at a normal salary for the role that each one has performed. The money that you have not earned as salary, is a contribution money and you have the right to also be returned, just as you did with the other partner.
• To know if the correct thing is 50% to 50%, I need to know how much it cost to start again, how much the partner contributed, how much you contributed with unpaid wages and how much the business is worth today.
• It would also be necessary to know how much they are earning.
What to do? Before meeting with the partner, take a notebook, scratch the center, and write on the left your situation before the partner arrived and on the right what the current situation is.
The list has to be as complete as possible.
Then on another sheet write down how they got to the current situation:
• The amount of money invested by the partner and how it was invested.
• The efforts of each one to improve the store, attract more customers, provide a better service, better negotiations, etc.
• The time of both of you and the uncollected wage value of all that time invested.
• Where would they be if the partner had not contributed said capital?
If you had consulted me before negotiating, my proposal would have been a little different from the one agreed.
Now the partner already has his money and also owns 50% of the company. What he did was a loan. How much was the contribution then? The interests and perhaps with having requested some type of mortgage guarantee on that loan. I trust in you.
But you contributed your time. Those wages were his contribution. In practice, you also lent that money, because you did not collect it. I think they should get that accumulated money back, too.
The above to be in the same conditions.
Henceforth, each partner is entitled to receive profits proportional to their investment. I do not advise that they withdraw 100% of the profits, a part must be reinvested in the business.
As for the salary, it is a separate matter. It has nothing to do with profits.
Working partners must receive a "market" salary, that is, the salary that would be demanded by any external employee, who is not a member. Members who do not work do not receive wages, only profits.
The partner who does not work should not receive a salary.
If the company generates profits and you make the decision to distribute them, these are distributed proportionally to the participation. In your case 50% for each part.
Now, on whether or not it is fair for the partner to have 50% and you too, I must not comment, because I am missing a lot of data.
I hope that these comments are useful to strengthen your business project that you have and to continue growing.
