How do we restructure ourselves after a partnership?
My husband and I own an LLC (an interactive shop) that we were just starting to get off the ground. Then an established, yet small (6 employees) advertising firm offered to give us health insurance, help with payroll, taxes, etc. if we joined their partnership and expanded their current offering. We now need to decide how to handle restructuring. They have two partners--33 percent and 67 percent owners. What are our options to buy in, use sweat equity, etc? I am also interested to hear about different profit/risk sharing scenarios. Can you help me understand what our options are?
Join us at Entrepreneur magazine's Growth Conference, Dec. 15 in Long Beach, Calif. for a day of fresh ideas, business mentoring and networking. Register here for exclusive pricing, available only for a limited time.Well, that's a complex question, but I'll try to give a simple answer. Generally an LLC is a much preferred structure over a partnership because it gives far more legal protection and a far more marketable asset when the business is built.
As for joining the two companies, I assume both have a value. Either get an outside valuation or agree on a valuation method and join together based on current values.
If that doesn't work, yes you can negotiate to have a value of the new entity based on your work so far and your upcoming work. All that said, I would seriously question going into a partnership with people you haven't known for a solid amount of time. If you do decide to go into a partnership, remember this: Most partnerships DO NOT work out. Even marriages fail at a rate of 50% these days. Seriously look at how you can both work together for a period of time and both get the benefits, but don't officially partner with each other until you are really sure that forming a company together is the best thing to do.
All the Best,
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