My partner and I are 50-50 shareholders in a start-up. I am the business builder, marketer, and president; he is putting up the money. I am worried about how I will feel when we begin making enormous amounts of money. Is it fair that he is a 50% shareholder if I am doing all of the work?
You have sweat on your brow, but your partner has skin in the game. It's his capital that's at risk. He is entitled to returns -- ideally many happy ones.
Still, smart partners routinely reassess their relationships. If you suspect yours stinks, by all means renegotiate -- though you may want to wait until your company is up and running and raking in the vast sums of cash you so optimistically envision. "The financing partner should get a return on his initial investment," says executive compensation expert Greg Keshishian. "But if your efforts are driving the business, you should share in a larger portion of the benefits."
One option is to set a revenue goal after which the harder-working partner gains share. That's how things work at Warm Spirit, a maker of lotions, candles, fragrances, and herbal remedies based in Exeter, N.H. Daniel Wolf, the outfit's pockets, keeps all profits up to $5 million -- the amount of his initial investment. After that, he'll split even-steven with CEO Nadine Thompson. Thompson's okay with that arrangement -- at least for now. As for the future, "His goal is to have me be richer than him," she says.
Protecting an Invention
I've come up with two products that people need but that do not yet exist. They don't consist of new technology, so I don't think I can get a patent, nor do I have money to build them myself. What are the risks of taking my ideas to a large corporation?
Cliff Choury, Fort Collins, Colo.
Corporations view unprotected ideas the way bars view drunken drivers: as lawsuits waiting to happen. With no patent or pending application, it's unlikely that any major company will look at your idea. After all, inventors need nondisclosure agreements before tipping their hands, and that leaves companies vulnerable if it turns out they're working on the same one-in-a-million product idea.
A lock, in other words, is key. Fortunately, the U.S. Patent Office smiles on even the simplest inventions. Case in point: U.S. Patent No. 6,004,596, awarded to the creator of a "sealed crustless sandwich." Check the agency's website (www.uspto.gov) for a list of registered patent attorneys and a patent database. The American Intellectual Property Law Association (www.aipla.org) also publishes a useful online document, "How to Protect and Benefit From Your Ideas."
Rent or Own?
We are upgrading our computers and are wondering whether to lease or buy. It used to be that lease payments were attractive for write-off purposes, but with the new depreciation rules for capital investments, what is more worthwhile?
Strategic Reach PR, Denver
When it comes to purchasing new gear, the tax code lays its thumb lightly on the scale: A new expensing allowance lets businesses write off up to $102,000 of tech equipment purchased before the end of 2004. But leasing has charms of its own, says Joe Marchbein, a tax manager at Huber, Ring, Helm & Co. in St. Louis. Specifically, leased business equipment returned at contract's end is 100% tax deductible. And leasing agents are often more generous than banks with credit and payment terms. But back on the buy side: Leasing agents' rates are higher than those at banks. They don't always replace stuff that breaks. They may slap on heavy fines if you don't return every last cable in good condition. And you do have to return things, you know.
How much your equipment is taxed matters. But so does how much you tax your equipment. Ask yourself this: Is the technology needed for a limited time, after which it's destined for life as a doorstop? In that case, lease is the word, says John Sheaffer, CEO of Sysix, an IT consultancy in Oak Brook, Ill. Or do you expect to use the hardware on a daily basis for years? Then buy it new or buy it used. But by all means, buy it.
Stumped by a thorny business problem? Let Inc. help. Send your questions to AskInc@inc.com. We'll consult with experienced entrepreneurs and savvy advisers, folks who've been where you are and figured out what works and what doesn't. If you don't like what we have to say -- well, you can tell us that, too.