We expect to be generating revenue pretty quickly. Does his 2.5% entitle him to 2.5% of the profits, after my partner and I draw salaries? Or does he get a a dividend that is 2.5% of the salaries we are drawing? We'd also like a clause for us to buy out his shares. What's a good price for that?
Googling for "partnership agreement" gives me a lot of results. Are any of these more suited to our situation? Thanks, I really appreciate the help.
I'll let you guys know as soon as we launch. In the meanwhile, I'm not comfortable sharing the idea because with a basic background in the medical/laboratory sciences anyone could duplicate what we're doing.
1. Your valuation is correct and considering you only have an idea, its pretty darn good.
2. The 2.5% of profits would come after the salaries. Salaries aren't profits. That said, you can't just pay all your profits out to you in salary. You will need to set that up ahead of time with his / her input.
3. Lastly, just from an outsider perspective, your buyback clause comment makes it sound like you are being a bit greedy. You have an individual who you call your friend and who is giving you a good valuation and you are a) concerned about 2.5% share of the profits s/he will get (relative to your collective 97.5%) b) Trying to pull the shares out from under him whenever you like.
An investment is a partnership and it is, to say the least, bad karma to screw over a partner. He is risking his money for the upside. An upside comes at an acquisition or an IPO not a buyback from the founders.
If you don't want to give up equity, don't take money. If you need money, equity is what you trade. This will likely not be the last time you make this trade, so start getting comfortable with it. Still, it sounds like maybe you will be happier with all 100%.
All that said, get a lawyer.
Sounds about right. However, with an LLC you can divide the profits anyway you like regardless of the ownership. For example, you can agree to have your investor get no profits at all for the first 2 years and then after that get, say, 10% of the profits (basically any percentage you agree on). Or, you can even be more creative such as having your investor get all the losses for the first two years (to offset his income from other sources and reduce his tax burden) and then get him to receive 2.5% of the profits after two years. You have full flexibility with an LLC, but consult a good attorney or accountant to make the best of it.
Nolo Press has a bunch of great books to help you set up your organizational structure, and they include templates for your operating agreement. I was just browsing them in Borders last weekend. They are awesome. And they're like 20 or 30 bucks. :)