need serious advice on company structure

[razuel]

I'm having a problem with my friend that I'm in business with.

We're a small company that basically consists of myself doing 95% of the design work and him doing most of the business side of things and various other people we hire for certain jobs. He sends out monthly invoices for hosting, helps deal with clients, takes care of all the financial side of things, and comes to meetings to help sell our services. On any job we have to pay everyone who worked on it, including the coder, some money towards the company, myself, etc. I joined up with him when the company was nothing more than a side project that he did and with my talent and drive I've turned it into something that's on the fast track to becoming a design firm. I work my ass off with design pitches, our own web site, and things like case studies for absolutely no pay so that the company can grow. I'm focused on turning the company into a design firm and I'll lead all creative direction.

Currently when we get a job we're taking it and breaking it down into percentages to figure out who gets how much. Say we get a job for X amount, 20% goes straight to taxes, X% to the company, X% to the designer, X% to him for dealing with clients, etc. Based on how much everyone does on the project. For whatever reason, he wants to phase me out of the financial side of the business completely. He thinks that I shouldn't have any idea how much we're making on a project and how much everyone is getting on it. I realize that if I were hired as a creative director at a company this is how it would be anyways (I think, let me know if I'm completely wrong). But this situation is different. I trust him, but what if we grow to the size I want and we end up making 100k on a project and I have absolutely no idea? He could easily take a huge percentage for himself because he THINKS he deserves that much and I get a certain amount without knowing how much I should be getting. It doesn't seem to me that he can decide how much everyone should get without my input.

Am I just worrying for nothing? Should I go ahead and let him take all of this on so that we can grow into that design firm I want? Or am I right for wanting to be involved with the financial side of the business?

I really don't know how to deal with this, would love your input.

[PrintDriver]

Are you a partnership?
Who actually owns the company?

[frankster]

Same questions as PD.

It sounds like you may have made a success of someone elses business and despite your worth to the company, you might only have the rights of an employee. I hope you are a partner on paper somewhere and if not I would negotiate that sharpish.

[razuel]

He started this company in high school as a side project. He registered it himself a couple years later as he started getting a few monthly clients, but it was nothing more than a few extra bucks on the side type of thing.

He knew that I had talent and was still in art college so asked me to help out. He doesn't view it as a partnership I don't think, but that's exactly what it is.

In other words, he owns the company, but yes-- I made success of it.

This company can't go anywhere further without me and will go backwards if I leave. Should I talk about a partnership? He's a friend so I don't want to make things bad between us, but don't I have the right to be involved with that side of things? It doesn't make sense to me that I meet with a client, figure out what they want, put together a pitch, sell it, create the design, and deliver it without ever knowing how much money is involved at all. On top of that running several aspects of the company (like the our logo and web design) without compensation.

[frankster]

but don't I have the right to be involved with that side of things?

Not unless you have that right spelt out on paper and signed by the two of you.

Honestly, read your last post through again. You definately have to sort this out before you make someone else a lot of money and then have to leave in a huff.

[budafist]

Tell him you want to be a partner. Find out what it takes.

[razuel]

I'm definitely going to talk to him about it, but I have another question first.

How exactly are the finances of a firm run? I want to be a partner in this and be involved in all aspects, but I want to primarily deal with the design side of the business. This doesn't mean I want to be left in the dark about the finances though.

An example that I can come up with would be Joe Duffy and his firm. He started it 20 years ago and now they've got all of these people working there -- http://www.duffypov.com/people.aspx -- but is Duffy left out of the business side of things?

[MPI]

A lawyer will answer your questions in specific terms, but I think the idea would be to incorporate as an LLC in which you and your partner both hold shares. The bank accounts would be in the LLC's name.

You don't have to get involved in day to day business operations, but as a shareholder you would have access to the bank accounts and financial/tax type statements.

Also, there's nothing that says you both have to be equal shareholders. There are good reasons not to, actually.

[razuel]

A lawyer will answer your questions in specific terms, but I think the idea would be to incorporate as an LLC in which you and your partner both hold shares. The bank accounts would be in the LLC's name.

You don't have to get involved in day to day business operations, but as a shareholder you would have access to the bank accounts and financial/tax type statements.

Also, there's nothing that says you both have to be equal shareholders. There are good reasons not to, actually.

Well he already incorporated it as an LLC. I don't want to exactly be an equal shareholder, I don't think, I just want to be in the loop and have a say in things.

[tZ]

As its duffy's firm I doubt he's left out of the business side. He stated in a lecture that he doesn't do a whole lot of the design work so he probably does handle most of the business side and leave the deign to his son and other designers. That would be my impression after the presentation he did.

[PrintDriver]

Who's his partner? It takes 2 people to make an LLC...at least here it does.
Lawyer up on the side. Find out what it takes to become a partner. Do the paperwork.

But, why you would want to do this if you don't trust him financially is way beyond me. If you have doubts, rethink this entirely.

You are between a rock and a hard place. So is he if you leave. But maybe he doesn't think so. You might remind him, nicely of course, that even though designers are a dime a dozen, they aren't all as talented as you.

[Drorain]

I'm working out a small partnership with a coder friend of mine, going through some of the stuff is pretty interesting, but nerve racking. Especially for me it's part-time.

I don't envy your position, but would like to here how it progresses

[razuel]

Thanks for the advice guys. I put all of my thoughts down in written form and plan on emailing him to get the ball rolling on this. I'll let you know how it pans out.

I know it's definitely and LLC already, so either the laws are different here or he used his dad or someone to make it happen.

P.S. Is there anywhere online that I can find partnership agreements; or do I have to write this/hire a lawyer myself?

[razuel]

Never mind, I've found some forms that look great through google. I'm not sure a lawyer is necessary at this point.

[CkretAjint]

Start handing all the clients your personal contact information. and then in 3 months walk, and the clients will call you for their work. Problem solved, no middle man and you have your own company. ;)

[Broacher]

>>In other words, he owns the company, but yes-- I made success of it.<<
>>How exactly are the finances of a firm run?<<

I see these are contradictory statements. If you want to claim your share of the creative/quality side of the company's product/services-- that's one thing. But it's NOTHING without someone taking on the responsibility of handling the marketing, promoting, planning, bookkeeping, accounting, tax planning, legal and government requirements and so on.

Which is more important? Creative talent or business management? I've seen more very creative people fail miserably because of lack of business skills than I have seen very skilled business people fail miserably because of lack of creative talent.

Maybe it's the Hollywood and pro sport star system that's thrown us into the false perception that without talent there would be no business. But that's only true for the very, very, very best. And even that's no guarantee. For most of us mortals, the story is quite different.

My gut prediction? If you've been out of your company's business loop for so long I don't see how you could turn his decision around in any reasonable time. Don't get me wrong-- I believe you probably deserve a formal partnership in recognition of your worth to the company. It's just that, by being treated the way you have been for so long, it's going to all that harder to make up ground. I hope not. Nobody wants to be a 'lesson learned'.

>>He thinks that I shouldn't have any idea how much we're making on a project and how much everyone is getting on it.<<

That sure doesn't sound like partner-speak to me. Good luck!

[razuel]

No no, I'm fine with the way I have been treated for the most part. The problem is that he decided yesterday that he wanted to eventually phase me out completely of the finances to the point where I know nothing other than what I get paid. He told me he was going to bring someone on to deal with the finances in Jan. He didn't consult with me at all about this.

Up until this point, I've been involved with the quoting process and the payment process (deciding what money goes where). For good reason, too. The sudden change confuses me and shows me that he definitely does not view this as a partnership. If this isn't a partnership, then I'd much rather apply to a large design firm than work for him.

And I understand what you're saying about the business side of things and that's why I joined up with him in the first place. I can't do this on my own, but he can't do it without me. As of now I design 99% of our work. I'm also the creative writer for the team. He has no creative bone in his body that would allow him to sell our services or provide services at all for that matter. He could try hiring someone else, but I know very well that he won't be able to find another me for the price that I work for. Not to mention that we've become quite good friends working together.

I just sent out the email. Thanks again guys.

[Drazan]

Never mind, I've found some forms that look great through google. I'm not sure a lawyer is necessary at this point.

Honestly, rethink this.

You are at the point that you want to embark on a full busniess partnership. That is a lot more than just being a name.

If the business suceeds then things are good, But if it becomes financially tight or failing then your name is on the line. Even the limited liability or other such partnerships there is that aspect of responsibililty.

How everything is drawn up - really does require a lawer to know what laws and bylaws are applicable in your state. You could use that "google form" but it very well may be invalid in your state. Also if you do file as incorporated, or LLC or apply for copyrights, trademarks, patents in the future your ownership rights must be clearly defined.

Don't burn yourself just because you want to take the easy way (less expensive way) out.

[razuel]

He responded and basically said no. I replied and told him what that means for my future at the company-- he's not going anywhere without me so he'll either fail with this or bring me back.

I have nothing to lose and can actually gain by leaving the position, but he has a lot to lose and nothing to gain without me as a partner. We'll see what he says next.

[frankster]

If you were doing all this without contracts between each other (regardless of contracts between the company and clients), how will this affect your rights to the creative work done at the company. Do you own the copyright to all the files personally, as the creator, or was some forthought put into paperwork so that the company owns them? Could get very messy if a current client wants changes to a piece you have made once you have left if the company has not got copyright of the piece included in any work contract you signed. Have you signed any kind of contract? Not to mention who owns the rights to the logo, stationary and website that you designed for no pay.

[razuel]

This is very true. Neither the company nor I own the rights to any of the work; so I'll take my work and present it as my own still. If he wishes to continue to use my work, I'll let it go because I'm not concerned about it.

Hopefully this won't affect our friendship and he won't try to copyright my work.

[razuel]

After some back and forth, he replied with this,

Thank you for being clear on what you're looking for.

What I thought you wanted:

- Legal Binding rights to the company
- More money

What I will offer you:

- Access to quotes, what people will make.
- Ability to sit down with myself and or my dad to talk about and oversee finances.

This change in the company was not designed on my part to keep you in the dark. The plan was to separate and divide positions and responsibilities. I thought you would be fine with the situation - I was pushing to move forward the company with this decision. Unfortunately that wasn't the case.


He still hasn't said anything about the partnership or whether or not I'll be there for decision making. I don't need legal rights to the company, but I want to be an official partner in the sense that everything is dealt with 50/50-- decision making, that is. I responded in that sense.

[Cahenz]

...he owns the company, but yes-- I made success of it.
I don't want to sound alarmist, but I would run. Don't trot, don't saunder or skip, but RUN. Like many aritsts, you're assuming you don't have the left-brain dominant savvy to run your own company, and obviously that's not true. Go get yourself incorporated, then you're in charge.

Or, if you think the business relationship is salvageable, then have a serious talk with your partner. One thing I learned is a sour business partnership will sink you, but quick. Make sure you've got yourself covered because no one else is going to look after your interests but you. You're the talent, which means you're WAY more important. Hire a CPA to handle all your papaerwork and eliminate him completely.