My cousin and I are in business together, and I want to branch out into other ventures. How do I determine a fair split in terms of ownership and profit?
My cousin was selling a product and I thought I could improve on it. I approached him and we agreed on a 50/50 split since I was investing in some equipment to create the product as well as investing in a website.
I am now considering a couple of other business ventures that utilize similar machinery. However, I am considering purchasing a different, more advanced machine that will require an investment of approximately $20,000, which I will put up.
I feel somewhat obligated to keep my cousin involved in all the different fields I'm entering. How can I come up with a good, fair split if I'm investing all the money and coming up with all the ideas?
You can be an owner and/or investor of more than one business. However, you want to be sure that your obligations to one business (e.g., use of machinery, understanding of confidential information) don't conflict with another business.
If you are not using any of the machinery, information, or resources of your cousin's company, and if your new ventures will not compete with his, you have no obligation to give him an interest in your other activities. If he is putting in no time, effort, capital or resources in connection with your other ventures, theres really no need to give him more than a minimal percentage, if any.
Best to speak to an attorney and an accountant about how to structure and value the interest you feel is fair for him to have.
Nina L. Kaufman, Esq. is an award-winning New York City attorney, edutainer and author. Under her Ask The Business Lawyer brand, she reaches thousands of entrepreneurs and small business owners with her legal services, professional speaking, information products, and LexAppeal weekly ezine. She also writes the Making It Legal blog.