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  1. #1
    Join Date
    May 2011
    Posts
    1

    Default Whether to Agree to a Start-Up Business Partnership Agreement

    My question involves business law in the state of: Illinois

    Hello. I am starting a business with 2 other individuals, 1 woman, the other a man. For this question and privacy's sake, we will call them Anna and Roger. I will be Maj1k. I have been struggling with them delivering a contract to me. Finally last night they send me one. Along with the contract, they stated the following that didn't quite sit well with me:

    "You should read my name in the document as Roger and I. We believe it is in the best interest of the company to have it as a woman owned minority business. As such, I will hold Roger's stake in the business (notice how he trusts me :0). You and I will be the named partners. Because of this…we need to work through some details regarding the death clause…so the current death clause will not stand and have a lot more robust language on what happens if I should die."

    Is there anything wrong with that picture?? Roger's stake is 40%, Anna's is 30%, and mine is 30%. Does this mean Anna will now be at 70% and I at 30%? Roger and Anna have been working together for almost 20 years. I met Anna about 6 months ago and we have been doing work together ever since. Finally, she feels comfortable enough to introduce me to their business partner Roger, and the project we are working on now is almost assuredly going to be the next big thing for the industry we are going into. I just need to know what I need to do as far as covering myself financially and overall company wise. I feel like if they wanted, with 70% they could easily push me out.

    Also, please take a look at the below contract (I took all personal information/details out), as they don't sit well with me either.

    This Partnership Agreement is made on_____ between Anna and Maj1k
    1. Name and Business
    The parties hereby form a partnership under the name of AC Technologies to produce technology and services. The principal office of the business shall be 2126 N Main Rd., Chicago, IL 60606 (fake address)
    2. Term
    The partnership shall begin on [Insert Date], and shall continue until terminated.
    3. Capital
    The capital contribution of each partner to the partnership shall consist of the following property, services, or cash which each partner agrees to contribute:
    • Anna – contribute funding for start up expenses, all marketing and sales initiatives, internal project management, internal busines infrastructure, HR, and SME expert intellectual property.
    • Maj1k – contributes technology infrastructure, platform, SME expert and intellectual property.
    4. Profit and Loss
    The net profits and net losses of the partnership shall be divided based on ownership allocation.
    5. Salaries and Withdrawals
    Neither partner shall receive any salary for services rendered to the partnership.
    6. Interest
    No interest shall be paid on the initial contributions to the capital of the partnership or on any subsequent contributions of capital.
    7. Management Duties and Restrictions
    The partners shall have equal rights in the management of the partnership business. Without the consent of the other partner neither partner shall on behalf of the partnership borrow or lend money, or make, deliver, or accept any commercial paper, or execute any mortgage, security agreement, bond, or lease, or purchase or contract to purchase, or sell or contract to sell any property for or of the partnership other than the type of property bought and sold in the regular course of its business.
    8. Banking
    All funds of the partnership shall be deposited in its name in such checking account or accounts as shall be designated by the partners. All withdrawals therefrom are to be made upon checks signed by TBD process.
    9. Books
    The partnership books shall be maintained virtually and reside at the premise of an agreed upon accounting firm. Each partner shall at all times have access thereto. The books shall be kept on a fiscal year basis, and shall be closed and balanced at the end of each fiscal year. An audit shall be made as of the closing date.
    10. Voluntary Termination
    The partnership may be dissolved at any time by agreement of the partners, in which event the partners shall proceed with reasonable promptness to liquidate the business of the partnership. The partnership name shall be sold with the other assets of the business. The assets of the partnership business shall be used and distributed in the following order:
    (a) to pay or provide for the payment of all partnership liabilities and liquidating expenses and obligations;

    (b) to equalize the income accounts of the partners;

    Death
    Upon the death of either partner, the surviving partner shall have the right either to purchase the interest of the decedent in the partnership or to terminate and liquidate the partnership business. If the surviving partner elects to purchase the decedent's interest, he shall serve notice in writing of such election, within three months after the death of the decedent, upon the executor or administrator of the decedent, or, if at the time of such election no legal representative has been appointed, upon any one of the known legal heirs of the decedent at the last-known address of such heir.
    (a) If the surviving partner elects to purchase the interest of the decedent in the partnership, the purchase price shall be equal to the decedent's capital account as at the date of their death plus the decedent's income account as at the end of the prior fiscal year, increased by their share of partnership profits or decreased by their share of partnership losses for the period from the beginning of the fiscal year in which their death occurred until the end of the calendar month in which their death occurred

    Is there anything wrong here? When I look at the portion that discusses Profit, I get kind of weary. I also don't understand the fact that they wish for this to be a minority owned, female owned business. I understand what business benefits comes with that ownership, but I don't understand how Roger's other company that he owns effects the way we need to work out ownership of this company. In my opinion, all of our names should be on the contract....all of our compensation should be on the contract....all of our ownership rates (percentage of the company we own) should be on the contract. Please let me know what I should do next.

    Thanks!!
    Bl4ck Maj1k

  2. #2
    Join Date
    Sep 2005
    Location
    Behind a Desk
    Posts
    98,846

    Default Re: Whether to Agree to a Start-Up Business Partnership Agreement

    If you're worried that the 70% owner(s) will force you out, I doubt it makes much difference whether you're talking one or two people holding those shares. With Anna holding 70% of the shares (and thus, presumably, the votes) it would seem that she could unilaterally override you on every issue - I don't know if you're planning on an active or passive role. I am not sure how you would propose that profits be distributed, or why the present clause makes you weary.

    Without knowing how much money is involved, the nature of your proposed role in this business, or the reasons for your concerns, all I can really do is say, "Have this reviewed by your business lawyer." It's up to you to exercise due diligence before putting your money into this venture.

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