legal, business-model, llc, contracts, ownershipBackground
I met someone who registered a single person LLC in July last year, let’s call her Susan. There are no outside investors and Susan has put a considerable amount of time and money into the company.
Greg and I met Susan, and decided we wanted to help achieve Susan’s vision of creating a marketable product and service. We’ve been helping since January. In the past few months we have really pushed forward past a lot of obstacles. Susan said she couldn’t be where we are without Greg and I.
Dilemma
Greg and I have been promised by Susan, in vague terms, that we are going to be compensated for the work we are putting in. Susan has talked about us being business partners (instead of employees). Greg and I realize how much work Susan has put into the company. Susan realizes how much Greg and I do as well.
Currently none of us (not even Susan) are compensated for our work because there is no revenue. Greg and I don’t have contracts or any legal documents protecting us or obligating Susan to do anything. I don’t even know what those documents would look like.
Susan’s Logic
The company isn’t valued at anything yet, so it’s hard to figure out what percentage of ownership to give to Greg and I. So after a year or so we will come up with shares/ownership ideas but it’s not worth the time/energy now.
To me, this sounds like she wants to take the best cut for herself. Is this a legit reason?
The second line of thought: it costs money to work on legal document changes (to switch out of an LLC) and a multi-person LLC would put Greg and I in legal risk in case of lawsuit.
What do you think?
Ideas?
How can Greg and I protect our time/energy investments for the next year and ensure that Susan is obligated to give us part-ownership? Any advice or opinions?
Does this person sound sketchy? Any gut reactions?
I really trust Susan. She’s done business for 30+ years successfully and has owned a couple of verifiable successful ventures. All stories she tells paints her in an honest and good light. I value her word - there’s just always a nagging feeling that minds change and I don’t want to be screwed out of the many hours Greg and I have put in already.
Please stop working for free.
As you clearly know, Susan legally owns 100% of the company unless she enters a legally binding agreement that states otherwise.
Clearly, the contributions being made are worth something, and to say that they’re not to me given the experience Susan supposedly has, seems to be either to be a poor call on her part, just plain dishonest, or somehow you’ve misunderstood her position.
Basically, the company is worth something, and an agreement needs to be reached to compensate you for the work you’re doing.
As for how to do this, that in my opinion is really another question.
I don’t think she’s being sketchy, I think she’s the founder & owner and she’s trying to get as much help as she can for as little as possible in return. It’s her ‘baby’.
I think your biggest issue is in this statement:
Greg and I met Susan, and decided we wanted to help achieve Susan’s vision of creating a marketable product and service.
It sounds like the initial idea to help her was yours and not hers. If she didn’t hire you or offer to make you a partner up front, then you’re volunteering. Even if she said she can’t pay you now but will, you’re still taking on the risk yourself.
Starting now I would stop doing any further work for her until she signs an agreement of some type. Make sure the agreement contains what you want, and there’s a time component to it. I would also add up your hours spent and put that in a separate document. Give her the option to pay you for your time with no expectation of ownership (if that’s acceptable), or work the ownership compensation angle, but then you’re down the rabbit hole of valuing the in-valuable.
In the end it’s up to you what your time is worth. But up to her what she’ll pay for.
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