Minority Percentage Owner. Drag Along

[filipinaya]

Please note that before reading, I am highly new in the business owning world. All the way from how to create appropriate contracts to even taxes. I'm new at everything.

Very recently, I bought into a friend's company. It is very small. Our target revenue goal this year is $750k. I bought 5%. Super small percentage, but I bought in because I believe in my friend, the opportunity was there, and I want to help. When I bought in, I said I would help with sales and work on setting up an online store, but i bought in from a casual standpoint. I was also allowed to have a small commission of each sale.

He has another partner that has 40%.

I also have a 9-5 job that pays really well. I work from home, so it is flexible to an extent, but it is sales, so I need to hit my quota. If I am not meeting my numbers, I obviously need to work harder.

I've only been with the company for 7 weeks... Recently, there has been some resentment going on that sales aren't doing well. And a bit of finger pointing, especially from the 40%er that I'm essentially not doing anything.

It is my fault that there were no expectations set up before buying in. E.g. what are the owners' responsibilities, what are my specific responsibilities, etc.

Because of this, I asked my friend, "I only own 5%, in your opinion, how are the responsibilities supposed to be split up?" He said, "33%, 33%, 33%." (There are 3 owners including me).

I was a bit taken back by this because the juice of 5% ownership plus a tiny commission is not worth the work of 33% and honestly I was not expecting to work at 33% of the business due to only being 5%.

What are your thoughts? I am leaning towards giving up the 5% because I am not willing to work 33% AKA full sales manager, hiring sales, firing sales, running out to the sales people to team sell, helping with quotes at the drop of a hat, etc.

 

[mommybear39]

@filipinaya I mean first question is, what does the partnership/operating agreement say? Typically they spell out what is expected of each partner. Very very generally speaking, 5% ownership doesn't mean 5% input. A lot of the time the minority partner put in less equity and actually does more "work" than a larger % partner. The fact that you don't seem to know if there are expectations is a huge, huge red flag.

Partnerships, even in the best of cases, tend to be very problematic. There is almost always an ebb and flow of work which tends to create resentment. I will get downvoted for this, but know that a 5% ownership stake really isn't worth much. Basically you are a non-voting partner. You have to have a LOT of trust and faith that your partners won't fuck you over, as you really can't do anything to stop it. The only time these small % ownership stakes make sense is when the company intends to sell or go public and you get 5% of the proceeds or actual public stock.

 

[filipinaya]

@mommybear39 Unfortunately, the operating agreement just states legality verbiage. There is no spelling out of each partners role.

I think I created my own red flag on accident by not understanding that 5% ownership does not mean 5% of the work. I am down to help, but not at the risk of my 9-5 job. I would be losing dollars to chase pennies.

 

[mommybear39]

@filipinaya Yeah that's a .... pretty big misunderstanding. And every partnership agreement should very specifically list out guidelines what each partner is responsible for doing. Sort of an aside, but small startups like this take a fuck ton of work. Like doing your 9-5 then going home and working from 5-9 on the side business. 5% or 50% it's all hands on deck so I understand why the other partner(s) are annoyed.

Sort of at the end of the day, how much did you invest? At $750k (speculative) revenue I would imagine it's around $40k. If so, you need to get an attorney involved and advising you on what to do. Ultimately, you can likely be voted out for cause. If that happens they (generally) have to repay you whatever you put into the business. Based on your post and replies, I would get out of this situation and try to recover whatever you invested.

 

[stargrl232]

@filipinaya What was the expectation of "work"?

Were you an "investor" or and "owner/operator"?

If these weren't spelled out, then they need to be before you all get farther along into the weeds.

This kinda feels like a bait and switch.