Is this a fair deal ??

[JMBgroup]

I am currently involved in a ecommerce business partnership 60/40

I am the 40% partner

my business partner created a new invention in our industry which we are patenting.

We are planning on developing this product and formulating a new company under our existing company which would retain the original 60/40 agreement.

The problem is my business partner is asking for a 1 dollar licensing bonus on each units sold on top of his already 60%

I have already paid my 40% for patent costs in addition will be contributing 40% of all production costs.

We are planning on retailing this product for $24.99


Any feedback or advice would be highly appreciated.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[devine]

Who is inventor?

If you think that you can just throw money on table and you automatically deserve equity - you're mistaken.
It's unfair that you have 40% in the first place.

 

[Jon L]

I'd say no. If you want to license the product externally and charge $1 per unit, then that money gets put into the company and he gets 60% of profit on the royalty, and you get 40%. He's already getting 20% more than you. And, you paid for your share of the cost of the patent (which isn't cheap).

 

[Scot]

Execution is key here, so great that he invented the product, but if you're building the business that sells it, I don't think he deserves even more money than the 20% more hes getting.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[ZCP]

Simple: How does the company have access to the invention if it is his? Is there a licensing agreement in place?

More important: Can you be profitable with the $1? Can the company make a lot of money and lead to future opportunities? Do you lose that opportunity unless the $1 is paid?

If he personally licenses the product to the company with a $1 per unit sold royalty, you are only paying $0.40 as the company is paying 100%.
If he wants 60%, then $1 royalty from your 40%, ask him how that lines up with 60/40 and what agreement is in place between him and the company.

Hold this in case needed.......if he invented it while part of and being paid by the company to do so, in most cases the company owns the invention.

Is there a shotgun clause in your shareholder agreement?

 

[devine]

Execution is key here, so great that he invented the product, but if you're building the business that sells it, I don't think he deserves even more money than the 20% more hes getting.

From what OP said, I'm sure it's just money, I don't think he would agree on 40% if all execution would be up to him as well. Money doesn't buy equity, it's just sponsorship. We're not in 40's.

5 minutes on the phone with this inventor about how easy it is to find money nowadays without selling 40% of company, and OP wouldn't get even 10%.

 

[JMBgroup]

Who is inventor?

If you think that you can just throw money on table and you automatically deserve equity - you're mistaken.
It's unfair that you have 40% in the first place.

He is the Inventor and Creator of the product. He made the entire prototype by hand as well... I give him credit for it but I don't think $1 royalty is fair on top of his 60%

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[JMBgroup]

From what OP said, I'm sure it's just money, I don't think he would agree on 40% if all execution would be up to him as well. Money doesn't buy equity, it's just sponsorship. We're not in 40's.

5 minutes on the phone with this inventor about how easy it is to find money nowadays without selling 40% of company, and OP wouldn't get even 10%.

Also to add we have been business partners for 10 years already and we simply used the current business money and time to pay for the patent and develop the prototype. We did not yet incorporate the new company or might not completely as its a product invention in our current industry

 

[AgainstAllOdds]

Also to add we have been business partners for 10 years already and we simply used the current business money and time to pay for the patent and develop the prototype. We did not yet incorporate the new company or might not completely as its a product invention in our current industry

My opinion: In that case the extra $1 isn't fair. If he used your business's time and money, then a fair split would be 50/50. If you're fine with 60/40, then great. But if you're not find with 60/40 + $1 royalty, then the other partner should scale back to 60/40.

Have you told him you don't think the $1 is fair?

 

[JMBgroup]

My opinion: In that case the extra $1 isn't fair. If he used your business's time and money, then a fair split would be 50/50. If you're fine with 60/40, then great. But if you're not find with 60/40 + $1 royalty, then the other partner should scale back to 60/40.

Have you told him you don't think the $1 is fair?

Yes I did
He said $1 is fair....so I say let the people decide what is fair ! He thinks he deserves an inventors royalty.
I think fair is something like .25

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[devine]

Currently you guys try to split money you haven't earned.
Decide on this additional 1$ after you see first money. And if you're partners for 10 years, don't make money split you, right relationships cost more than this.

 

[biophase]

Already sounds like a cluster F*ck...

You guys are partners in an existing business, used that business's money to get the patent? Then you each put in 60/40 of your own money to start up a new company? How is the work going forward going to be split up? What would happen if you took your 40% back and just left the company?

 

[JMBgroup]

Who is inventor?

If you think that you can just throw money on table and you automatically deserve equity - you're mistaken.
It's unfair that you have 40% in the first place.

Whoa, why do you think I dont deserve 40% ? He created the invention on company time, company funds, and used company equipment employees to help. The invention is related to the industry we are in. I have been a partner in the company for 10 years.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[JMBgroup]

Execution is key here, so great that he invented the product, but if you're building the business that sells it, I don't think he deserves even more money than the 20% more hes getting.

Thanks I agree , execution is key here and we are both building the company together but still I feel a $1 request is high.

 

[JMBgroup]

Simple: How does the company have access to the invention if it is his? Is there a licensing agreement in place?

More important: Can you be profitable with the $1? Can the company make a lot of money and lead to future opportunities? Do you lose that opportunity unless the $1 is paid?

If he personally licenses the product to the company with a $1 per unit sold royalty, you are only paying $0.40 as the company is paying 100%.
If he wants 60%, then $1 royalty from your 40%, ask him how that lines up with 60/40 and what agreement is in place between him and the company.

Hold this in case needed.......if he invented it while part of and being paid by the company to do so, in most cases the company owns the invention.

Is there a shotgun clause in your shareholder agreement?

He invented the product but with company funds, tools, machines and employees. We have been friedns for 10 years and partners for 10 with no agreement in place....so NO there is no Shot Gun agreement in place.

the product should cost 5-7 dollars to make and we plan on retailing for $24.95 so I do think there is room for the company to be profitable with a $1 royalty bonus.

 

[codonnell]

He invented the product but with company funds, tools, machines and employees. We have been friedns for 10 years and partners for 10 with no agreement in place....so NO there is no Shot Gun agreement in place.

the product should cost 5-7 dollars to make and we plan on retailing for $24.95 so I do think there is room for the company to be profitable with a $1 royalty bonus.

An earlier contributor noted that in effect the extra $1 profit per unit is only obtaining 40c additional because under your agreed 60/40 split he would get 60c of that $1 anyway. If I was you, and the business partner is a good inventor with other projects in the pipeline, I would not fight him on this 40c. I would seek however for him to confirm that this is final re negotiation of your terms - you will give him $1 profit on the provision he does not ask for additional financial remuneration in relation to this product or any new products. I really don't think this is a point worth fighting over.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[JMBgroup]

An earlier contributor noted that in effect the extra $1 profit per unit is only obtaining 40c additional because under your agreed 60/40 split he would get 60c of that $1 anyway. If I was you, and the business partner is a good inventor with other projects in the pipeline, I would not fight him on this 40c. I would seek however for him to confirm that this is final re negotiation of your terms - you will give him $1 profit on the provision he does not ask for additional financial remuneration in relation to this product or any new products. I really don't think this is a point worth fighting over.

He is creative but not really a inventor by trade with more inventions in the pipeline. I am confused though about the 60% of the $1. The way he thinks it would work is ... say the company makes 100K in year 1 and sells 30K units . He would take 60K and I would take 40K. in addition he would have the company cut an additional check for 30K to his name. This example isnt really the best as we wouldn't really draw so much money on only 100k profits but just for example.

 

[codonnell]

He is creative but not really a inventor by trade with more inventions in the pipeline. I am confused though about the 60% of the $1. The way he thinks it would work is ... say the company makes 100K in year 1 and sells 30K units . He would take 60K and I would take 40K. in addition he would have the company cut an additional check for 30K to his name. This example isnt really the best as we wouldn't really draw so much money on only 100k profits but just for example.

that makes no sense from your earlier description - i thought his desired terms were like this. you sell the product for $25, say you make 50 per cent profit from the retail sale, leaves you $12.50, he gets the first $1 meaning $11.50 is split 60/40 between you. In your new example, the maths does not add up, you sell 100k, you take 100k from the 60/40 split, that leaves zero, where does the other 30k materialize from???

 

[devine]

Whoa, why do you think I dont deserve 40% ? He created the invention on company time, company funds, and used company equipment employees to help. The invention is related to the industry we are in. I have been a partner in the company for 10 years.

Do you own 95% of company? If no - it's a weak argument.
Since you are partners, he owns resources of the company as well as you.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[ZCP]

The royalty is a cost to the company. He would be paying 60% of that cost since he owns 60% of the company. You can play games on the time period, but unless you pay it once and disband the company, it is still a cost.

Just agree to it in writing. Tell him you love working with him and want to get it in writing so everyone is good with it.

60/40 split
$1 royalty paid by the company to him personally for every unit sold in exchange for the company owning the patent.
Done.

Now get to selling! In your shoes, nothing would please me more than the company cutting him a $1M royalty check.

 

[HoneyBadger]

Did you guys get the 60/40 in writing before beginning? If so I think it is very weird for someone to come back after the fact and try to alter the deal.

Either way if you think the product is gold-mine you could try as add an expiration to the $1 per item royalty and then that time period would be further motivation for him to work to get them sold.

 

[biophase]

If your company makes $20 a unit and sells 30,000 units ($600k) then he gets $30,000 for his royalty. You company then makes $570,000 which you split 60/40.

You make $228k.

He makes $342k + $30k = $372k

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[cylonbc]

If your company makes $20 a unit and sells 30,000 units ($600k) then he gets $30,000 for his royalty. You company then makes $570,000 which you split 60/40.

You make $228k.

He makes $342k + $30k = $372k

In which case, the 1$ per product sold effectively shifts 2% ownership from OP to his partner (62% vs 38%)

Sent from my HTC One ME dual sim using Tapatalk

 

[ZCP]

No. Ownership is 60/40 (if that is what can be shown to be the case for the partnership agreement..... even if verbal). The royalty payment is a separate payment that goes to dude. Same as if they were paying a commission to a 3rd party. It just so happens that guy is an owner also. Separate transaction.

 

[IGP]

To further add to your predicament and why things ALWAYS need to be in writing.

Say you agree to your $1 royalty per item sold. OK, fine. Now you plan on selling them for 25 bucks and it costs 7 bucks to make it. (Gross margins of $18)

What if one day unforeseen competition/marketing conditions drives your price down to $9.99. Now you are making $3 bucks of which you are still paying him $1/unit sold.

Or worse yet, what if one day he just wakes up and says: "screw this lets sell a million of them real fast at $8.29"... He makes a million and you are butt speared!

He owns 60% of the company, which I assume means he has the "voting" rights in your company.

Shit gets ugly quick like this!

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Scot]

This situation is exactly why you should have a business lawyer draft operating agreements or bylaws 100% of the time. I don't care if you are friends. I don't care if you're spouses. Arguments and disagreements can DESTROY a company over $1.

Put it in legal writing before a problem happens. This is a cautionary tale for everyone.

 

[JMBgroup]

that makes no sense from your earlier description - i thought his desired terms were like this. you sell the product for $25, say you make 50 per cent profit from the retail sale, leaves you $12.50, he gets the first $1 meaning $11.50 is split 60/40 between you. In your new example, the maths does not add up, you sell 100k, you take 100k from the 60/40 split, that leaves zero, where does the other 30k materialize from???

I agree with you
What you are saying makes sense now

 

[Jeremy Groover]

I see where some think because he invented the product then it seems fair, but if your doing your fair share then I disagree. You have a partnership for a reason. Clearly he/she doesn't think he/she can do it all by him/herself. If they wanted you to just be an investor, then that should of been the agreement. You have a partnership and that's what it needs to remain as. You both have a job and as long as you are both doing it then that should be it. I would fight that. It seems like he/she is just trying to make an extra buck and if that is the mindset of that person, I think you are in for a real problem. He invented the idea, and like stated above. If he did it under the company, then the company is who did it. He already gets 20% more, that enough in my eyes. Especially if the company was nothing before you and him started it. If he already had the company and brought you in after the fact then I could see a little more of their side, but in the end, you made a deal and thats how it should stay.

Jeremy

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[JMBgroup]

This story just got more interesting.

My partner actually wants 1.50 Per Unit sold. I introduced a clause that would only hold the Royalty in place if the profit per unit was Greater than $5.00
If the profit is below $5 the royalty is eliminated. In addition I requested a commission for me if I bring in new business. He proposed .25 a uint

In addition if the company files a loss for the fiscal year the Royalty is eliminated.

 

[HoneyBadger]

My partner actually wants 1.50 Per Unit sold.

This guy seems like he is constantly trying to get more out of you.

In addition I requested a commission for me if I bring in new business. He proposed .25 a uint

What does the mean? We're you previously not going to be bringing in business?

If the profit is below $5 the royalty is eliminated.

Smart.