Business Advice Towards Web Company

Multiple Issues

[bobbonew]

Hey guys, I need some business-esque advice towards a website. Here's the situation. I created a really great innovative website idea and began developing it in October of 08. I have two really close friends who came on board to help me prep the site starting in November. (I know the old tale about not hiring friends, but that's alright). So anyway, the mindset behind it is that once the site starts generating revenue, they will get cuts. Once it generates enough for them to quit their jobs they will work on it full time (it has been my full time job since October).

So we launched the site in the beginning of February. I coded everything and am the sole person building that code and administrating our dedicated server (about 300,000 lines of code). It was never designated that there was any partnership at any time, and I retain full control of the company. I created the idea, created the code, they just run it for me so I can code more everyday.

My question is how much should I pay them? I toyed around with giving a percentage cut each month, but reading posts in this forum that is not something desirable. What kind of package should I offer them?

I also do not understand equity. These are two people who have really helped and given me feedback. How do you spell out who owns what part of the company is say I were to give each of them 10% of the company? More than that is unacceptable; when it goes mainstream this is my baby. And if they each own 10% of the company, does that mean they get 10% of the income each month?

As well, my friend has been financing the project. The domain name IS registered to me, and I have complete access towards the server. This part kind of scares me, but if its registered in a whois database with listing me to everything then only I own the domain regardless of who paid for it correct?

I'm just trying to protect myself while understanding more about business. I want the two to be compensated well, but if we really do jump to the big leagues I really do NOT want to pay them 33% of the income each when we make $15,000 a month. We start an lucrative ad campaign to put fliers into the hands of over a million people next week, so traffic is expected to increase ten fold. Please any feedback on what I should do? Seeing a lawyer right now is out of the question. I'm a young entrepreneur (21 years old), with a great future approaching, but with zero resources. If you need more details please ask, thanks!

[mattur]

You've had your friends working for you for 5 months and you're sorting this out now?! Get professional advice on setting up your company. Do it now. How much to pay them/ownership/equity depends on what you originally agreed - are they expecting to be equal partners? Get it sorted out.

No one can tell you what to do, it's different for every business, you'll have to discuss and agree it with your friends - as you should have done when you first discussed them coming on board ;) HTH.

[gpilling]

Your are in a deep pile of smelly things. Your friends have been working for nothing, one of them is financing it and you guys don't have a partnership agreement written with the advice of an attorney?!?!

@mattur is correct - get professional advice NOW! not later, NOW! There is for certain a difference in opinion between the three of you of what a fair and equitable portion of the company should be. This difference of opinion will only increase over time.

As far as owner percentage goes - yes, owning 10% means you can have 10% of the profits (or losses) each month. Effort should count (your hours of work) and so should financial risk (your friends money). Don't forget that if this huge boost of profits don't show up, your friend will lose his money.

From personal experience, having recently sold out a share of a company, there is nothing more important in a partnership than spelling out the rights, duties, percentage ownership, and means of selling in the beginning. I did not do an adequate job and it cost me hundreds of thousands of dollars. Learn from my errors and get your partnership agreement sorted out before any money comes in.

[bwnbwn]

Here is somthing to understand if they own 33% each then u only own 34%. They can get together and boot you if this kind of agreement is made.
Happened to my brother he formed a company and need some help they latter got together and voted him out.

Best and only advice has been given Seek professional advice NOW

[aspdaddy]

And if they each own 10% of the company, does that mean they get 10% of the income each month?

No all incomes belong to the company, it is not yours or thiers. Only profits get shared by shareholders.

Shares are usually decided when the company is formed by the amount of capital each partner brings, but it can be other things as well as cash such as buildings or cars, computers , fees paid etc. Time/Expertise is different and is compensated by fees, expenses & wages.

then only I own the domain regardless of who paid for it correct

No , you can never 'own' domains. You are simply the current registrant which means very little in law.

As suggested above, get legal advice and formalise the company asap

[buckworks]

I agree with everyone who has said to get legal advice, but here's something even more basic to think about.

Ponder this: why would you want to turn cheapskate when the income reaches any particular level?

The best way to ensure continued growth is to reward and motivate the people who are helping you grow.

Don't fall into the trap of capping your own possibilities because you're afraid someone else might make a buck along the way.

[piatkow]

No all incomes belong to the company, it is not yours or thiers. Only profits get shared by shareholders.

In most, if not all, jurisdictions that would only be true for a legally incorporated body. My reading is that the OP has entered into a partnership without a formal agreement.

The whole affair is dependent on local law and local legal advice is essential.