What is my husband entitled to in the business he started up first?
My husband decided to start up a handyman service, and he asked his cousin to join him to help him always have a job. They have a gen partner. The agreement was we finance it, do the hire, fire, the payroll and keep our full time jobs until this gets off the ground. His cousin agreed to go out in the field and the company gives him a paycheck. Well so far we been doing what we said we will do. We've been having to go out on the job to help him when he gets himself behind. Which we have no problem doing. But now his cousin is wanting to cut my husband out of his equal share by it being my husband gets 25% off the top and he gets 75%; that is him doing the payroll and the hands, and him financing the supplies and so on. Well the other day, his cousin got himself in a jam again and we had to finance the supplies and go help him out because he got behind again then saying this is 50/50 again. Well, the job is now done, and the company got paid. Now he is saying that he made $2,300.00 off it and my husband gets his 25% which is $1,250.00. Tomorrow we have a big job and he has to pay for the supplies up front again, and he is wanting us to give him the $1,250.00 to help with that again. I know when this is all done he will start his crap about the 25% and 75%, so I'm asking: What rights does my husband have and what percentage is he entitled to in this? The cousin has only put time into this business, nothing else. Help!
If the company, is securing the work, and the cousin (is an employee - ie earning a paycheck) then the agreed amount is what each party is meant to get (25% Business, 75% Employee).
Now if the employee, is not capable of completing a task in the predetermined time frame allocated and support is required from the business, then the business should be paid compensation from the 75% as a result of the employee's inability to manage said task. Thus the employee now is owing the business.
Ms Christina, business is business. There is no family in this. Even in family run business, the family relationship does not come into the picture. So your husband will get his share as agreed because at work, he is also an employee like anyone else. FLORENCE MACDONALD
Once TRUST is broken there will be numerous problems until confronted, and resolved through expectations of both parties.....
Thanks for the question,
I am looking at this from a different light.
You have enough comments relating to the "Partnership" issues,
I also agree with the aspect of getting the agreement more legal.
A business , is a business, and must be treated like one.
Enough of that.
The other aspect of what is happening is also a bit disturbing,
Putting the family ties aside, The cousin let's call him Mike.
Mike is simply using you.
1.) First off it looks to me like he is not hiring enough trades people.
Maybe it is because he wants to keep costs down, or maybe because he is under estimating the workload and requirements.
Whatever it is your hubby should not have to be called in to provide labour
simply because Mike is falling behind.
2.) I'm not sure because it's not stated, however I suspect the Mike is not paying your hubby for the catch up labour work that your hubby is doing.
if this is the case hubby should be paid the same as a labourer. Which must also be considered as before profit costs.
3.) Mike is using you as a bank. to finance his cash flow.
That's great as you can do this. However as you would know and understand money is not free. Again I suspect that Mike is not paying you any interest for the use of the funds. Not that you would ask for commercial rates, and setup costs, and account costs etc.
The thing is that while that money is not working for you, it is also costing you. As a business the repayment of the "loan" has to be made and considered to be a cost. before profits.
The interest for that must also be factored into the cost of the job.
Now as I said Mike is using you, and by doing that he may not be operating the business, as a business should be operated.
Taking out the family connection.
You see I would think that Mike has two options, he treats it as a business, of he treats it as a family business.
The original concept I think was for a family business 50-50 both helping out.
But actually Mike is thinking more along the lines of a straight out business, as he is thinking more along commercial terms.
I think that maybe the time has come to draw a line in the sand, and have Mike decide which way he wants to work.
He simply can't have his cake and eat it all himself.
Just cut ties. Walk away. Say, "I love you, cousin, but this business is too complicated. Why don't you just stick to your own gigs and we'll do ours."
Say, "I love you, cousin, but this arrangement makes us uncomfortable so we can't move forward as partners."
Then don't do any more deals with him.
THEN- start a new handyman business that you own 100%
Offer to pay him as an employee an hourly wage or project wage and that's that. Build your income into the quote.
My point is that there is no business here. The dollar amounts are small and there are no profits. Profits only happen when everyone is paid their fair wage. You're trying to split revenue in your partnership. This is a BAD idea.
If you weren't in a partnership you would have to hire employees and pay for financing. In this case you are hiring family members and using your own money. Treat these things as actual expenses because they are. Pay yourself back for the financing plus interest. Pay yourself and hourly rate, pay your cousin an hourly rate then, what's left over is your profit. Use that money to reinvest in marketing. Or, split the money according to your original deal.
My advice is to dissolve the partnership and simply hire your cousin or some other qualified handyman for future jobs.
Author of Slicing Pie- Perfect Equity Splits for Bootstrapped Startups (SlicingPie.com)
Well that is a very tricky situation, because it is family, and as you get to know the nature of the Handyman business, and you have already acquired some experience in how it goes. the Cousin will always need upfront money to pay for supplies, so to concord that, you should have a reserve account solely designed for projects and work towards building it up, and keep adding to it, 2nd sit down as a family so it does not get ugly, and I can make that comment being in the construction business for 27 years. And you need to have all your expectation, shares, commitments document in a legal binding manner, and agreed upon by all parties. Because you do not want it to disrupt family relationships in an form or manner, if these things are not made clear. This you should do right away have a sit down, because by the looks of it you will grow which is the sole purpose of doing business. so discuss these things now and make it very clear who is in charge, who and what % each gets. Hope this helps
If cousin is putting time to business means he is doing support o f administraion part. But rest market effort by Husband. So , husband is facing supplier from time to time with finance at own risk . So, here husband is entitled for 80% share after all expenses of business firm during current senario. Cousin is entitled for 20% only.
You need fresh legal registered agreement between both to be done on basis of nature of business transaction implementing for the sustainability of this project.
Also , if average effort level must be calculated and clasified among each quarter of both then draw a balance share of profit for each quarter separetely. It should be mentioned in legal agreement.
Do contact to abusiness consultant. thanks
What appears to be needed is a business attorney, a business plan and a written general partnership agreement that sites the responsibilities, and profit and loss distribution of each partner. The agreement should also specify the rules about the general partnership. Having said that it is paramount that you hold a business meeting and review or create...
1. A Partnership agreement
2. A Business plan
Your partnership agreement should provide the answer to following questions.
1. Who are the official partners of the business?
2. What percentage of ownership does each have?
3. Do you have a legal and binding partnership agreement in writing specifying the percentage of company ownership? If you do, good. If not, add it.
4. Is the partnership agreement signed by both parties and notarized?
5. Have you reviewed the agreement and associated financials with all parties concerned at least on a quarterly basis?
6. Specify duties, obligations and responsibilities of each partner going forward. The agreement should include how varied and unforeseen situations are to be handled and how this impacts payout.
Also note that each partner is equally liable for the debts and obligations of the business, as well as the actions of the other partner(s). All parties are legally bound to fulfilling the agreement.
The partner agreement and the business plan are not the same. The agreement spells out the obligations and responsibilities of each partner, whereas the business plan defines the business itself, its mission and objectives while detailing the process by which the partners will carry this out.
Writing Your Business Plan
Regarding your business plan. Write a detailed plan that spells out what the business is, it's purposes, reach and brand characteristics, as well as how you will run your business. Include the who, where, when, what, and how of the day to day business process. It should also include financials, a forecast of expenditures, revenue and profit. Detail how revenue is to be used, profit substantiation, partner salary and the payout process. Review this with all partners on a regular basis.
As a business plan archivist I have written several clear and detailed business plans for scores of new startups that have maintained substantial profits over time. Pre-written business plan templates are a great way to study partner delegation and business processes to determine what works best for you and your business partners.
You're in a bind and in an awkward position/situation. You need, in writing, agreed upon objectives and strategies. You need, in writing and in agreement, clear, comprehensive, time-bound contracts and agreements.
Most times Marketers and businesses can’t create customer value and build customer relationships only by themselves. They need to work closely with partners and alliances outside the firm, and with other company departments (inside partners). That's your issue. You need "Roles and responsibilities that are clearly communicated, understood and agreed upon.
But this seems more of a legal issue but it's also about personalities, families and communication. Is there a written agreement? Have you contacted an attorney? I have a bunch of rules and requirement under one of the 9P's of Marketing/Nine P's of Marketing concerning "Partners/Strategic Alliances":
o Great work can be the result of great partnerships! Easier said than done.
o Partnership and cooperative agreements are formed that enable parties to bring their major strengths to the table and emerge with better planning, products, services, promotion, presentation, distribution and ideas than they could produce on their own.
o A joint partnership; the joint relationships, partnerships and strategic alliances: The relationship existing between two parties; a relationship resembling a legal partnership and usually involving close cooperation between parties having specific and joint rights and responsibilities as a common enterprise. Usually plural or “Partners,” not Partner.
o It is important to partner with firms that have similar corporate philosophies.
o Mutual support and sharing: The employees and individuals of the internal and external agencies should share ideas, insights and resources to boost performance.
o Ensure that there is excellent planned and natural alignment of internal and external agencies/partnerships/alliances around common goals and purposes. They should be moving toward shared goals or goals. Or you may be moving apart.
Here to help. All the best.
So sorry this has happened to you. Let's start from where you are now. If you intend to keep the partnership in place, I suggest sitting down with a business mediator to iron out the details of your agreement. Be sure to consider several scenarios: current; future if business takes off, future if business fails. You also want to clearly identify the roles and decision-making authority, so everyone knows who is the boss on different aspects of your biz.
Now about your agreement. The upside is you have an opportunity to create an agreement that fits you, not boilerplate. Every small biz should have a biz attorney as a teammate. Simply essential.
You can find on on Upcounsel.com. What I like about that site is you can search for attorneys who work with startups and interview them via Skype before making a decision. I found my own attorney, Mary Hodges, on that platform and I've been thrilled with the contracts she created for me.
Although this is very frustrating, don't be discouraged. Because this happened, you'll be much better prepared going forward. Good luck.
Time out. Read the original written agreement/s. Who owns what percent of the business. And, regardless of who owns how much, what were the original rules. It seems like cousin is an employee - and thus should get paid by # of hrs worked at set hourly rate. If not a partner, and only an employee, then overtime laws kick in.
The company should buy materials, not the cousin.
Study your math - re cousin wants $2,300 and hubby gets 25% ($1,250) is not right. $2,300 + $1,250=$3,550. And, 25% of $3,550 is is $887.50?
Clarify everything in writing before the next job tomorrow. Have a tax accountant or experienced Score counselor assist, if needed. This is a mess. Don't let it get worse.
I agree in principal with what Ed Drozda said. However, if there is a general partnership agreement or a LLC with an operating agreement that should dictate the terms of the arrangement. If there is no formal agreement you need to create one. Absent a formal agreement then a 50-50 split would be required. Given the potential liability for certain kinds of work, you should have a corporation or a LLC to insulate you and your husband from any claims by customers or third parties against the company. Likewise, depending on the kind of work your cousin is doing you need to make sure he does not need a license for any plumbing or electrical work he does. You also need to make sure that permits are taken when required.
As to compensation, the question becomes one that both sides can agree. My view is that the cousin needs to make a living and your husband wants to grow the business so he can join it once the volume of work gets big enough. Assuming the cousin only works for the company, you might want to give him a preferred portion of the profit up to a fixed dollar amount, as though he was a paid employee and then a 50-50 split of the profit. If he is drawing a minimum income already, that is different.
However, if you do not have a formal agreement then you need to create one.
Christina, it sounds like your general partnership does not cover enough specifics about the costs and operations of the company. You mentioned your husband's cousin is getting a paycheck. If the cousin is an employee of your company, he must be paid hourly for his work. This means, he gets paid for whatever time it took him to complete the job and your husband gets the rest of the fee for service. If the cousin is considered a partner in the business, some defined fee sharing agreement needs to be defined between them. If your husband is financing the cost of supplies and handling all of the operating responsibilities, I believe 50% should be the minimum he receives.
I think all of you need to sit down and rethink how the company is being run, who is responsible for what, and how each of you is beng compensated. Without a formal agreement that covers these topics, you will continue to have these issues.
At some point, you may also come to the conclusion that being in business with your husband's cousin is not a good idea. Family run businesses are very challenging and often end disappointingly with relationships being damaged.
You may want to consider bringing in someone experienced in these areas to mediate and help craft an agreement that is satisfactory to everyone. This way, the professional deals with the heat and you guys can preserve your family relationships.
Partnerships are the most difficult form of business and the most likely to fail. Without knowing if you have a written agreement (which my guess is you don't) and more about the business structure it is hard to provide good answers. With the added difficulties that go with partnerships not having a written agreement that spells out everything in detail is a big mistake.
I think you really need to talk to a business attorney but one option might be if you are a partnership you might want to think about becoming an LLC and then you could just issue 25% of the stock to your husbands cousin. You are in a business with some risk anyway and having the extra protection an LLC offers might be worthwhile.
Sometimes when things are in a planning stage the reality of what will be involved isn't real clear. Perhaps, if nothing else, the three of you should sit down and discuss things and either come to an agreement about pay and ownership everyone agrees to or just close the business and then you could either start new and hire someone else or he can start new and search for business on his own. A partnership where no one is happy is no better than being stuck in an unhappy marriage.
Great answers from Ed, John, and James. One thing I noticed. It sounds as if you needed an employee, more than a partner. After all is said and done, I would leave family out. I have seen way too many business go down the tubes because of family and even dearest of friends. Food for thought.
This is a conversation for a business attorney however... I am assuming you have an LLC but maybe you are not incorporated at all. The answer to the question is based on what is in writing. If you have not sold or transferred ownership to the cousin then the cousin owns nothing. Splitting profits is not splitting ownership.
As for the compensation for a project. The person who put up the supplies should be paid back. Then the everyone with labor in the project should be paid for their labor at amount agreed upon in advance. Then what is left over (profit) is split based on the partnership agreement or other compensation agreement, if there is no agreement and you founded the company, you can claim it all.
Warning to everyone working on a verbal agreement. It may not hold up when it comes to getting paid. Put it in writing and if you don't like how it works out in the end, then ask for it to be changed (in writing) for future work.
(Edit) - Johns answer was posted while I was writing mine. Its a good answer and if I had seen it I my not have commented at all).
There is first the issue of the registration of the company and who is considered principals.
After there are the monthly expenditures of the company that need to be addressed within respect to the income.
Project cost and negotiation is performed usually by the owners/principals...as is what are the amounts for payment percentages and expected expenditures.
So, apart from what everyone else said re: entitlement to percentages, that is he said she said....which is only going to make things painful.
As there are 2 principal parties..it would make sense that it would be 50/50...but both sides have to present the work/time/investment inside and outside the workplace that they do to have each party understand what is at stake. Egos have to be left outside and only rational and objective negotiation has a seat to discuss these matters.
To be fair, if the person doing the job is making the paychecks come in...then they are owed what is due to them. If they screw up on a job or the job was underestimated for whatever reason, both sides have to suck it up and keep moving forward if you want the business to even happen. Its a learning curve everyday...so learn and move forward.
Clarity is key. If its not clear now, the advice on stop everything and put work on hold until legal/financial structure is put into place. Esp when it comes to ownership.
Remember that lawyers don't care. The longer you take ...the more they make. And that can be said outright. No one wants to give someone else their money. In the end you may have to continue to work with each other...so make it better for the futures sake. If need be, pay the person off for the last job, count it as a loss, and fire them. State clearly what the original intention was and how they overstepped themselves.
You DONT have to do business with someone that tries to domineer you or the business. After All, if its so easy to do all the work that a company presents, they would have their own company and do it themselves.
Christina - I agree with Ed Drozda. Hopefully you have an agreement and this can be settled quickly. It sounds to me like you both need each other, but maybe the cousin is not quite seeing that he can't do this alone - or he would finance the supplies and finish the job without your help. I agree with Ed, I think no matter what you need to get some legal advice. Good luck and let us know if we can help.
Oh Christina. Do you have a legally binding agreement? If you do, that agreement should specify what is expected and will permit you flexibility in dealing with this. If you do not (it seems you may not) I'm not sure you're legally entitled to anything. The first course of action, as I see it, is to STOP giving this cousin anything- yes, even if that means delaying a job. The next thing is to consult with an attorney, PRONTO! It seems to me that you have encountered a lemon and it's growing on the family tree.