Timmey

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Aug 4, 2020
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Here is the deal,

Me and my brother came up with a new idea for a product over 4 years ago, we designed, patented, made the business plan, found the factory, etc.

We did pretty much all we could do with our limited resources, but we knew that at some point we would need someone to put some money to start manufacturing, marketing and restocking.

We found our partner, let's call him Joe, 5 months ago. he is the brother of a friend of mine I know since childhood. We were very excited not only because he was going to put the money to get started but also because he has a doctorate in business and experience in the companies administration world, which neither me nor my brother have.

We like Joe. He is a honest guy and we trust him. We went over the business plan together and came up with the amount of money we would need until we can establish a positive cashflow. That number was 30k. The business plan was based on selling our product initially mainly on Amazon and Walmart.com and it was a lot of guessing involved since at that time we were still prototyping with our factory in China and we didn't have a working prototype.

Based on all this, considering the uncertainty and risk, he proposed to invest the 30k for 30% of the company. He also suggested paying ourselves a salary ( once there is positive cashflow) of 2k each for me and my brother and 1k for him since we were supposed to work full time and he was part time.

We negotiated a little bit and at the end we agreed on 35k for 30% and if the sales are over 2M a year his % goes down to 25%.

So far so good. We were excited just to have someone financing us.

The thing is that even with all his studies and experience he didn't prove himself to be an asset to us. Basically he did nothing in this past 5 months. He lacks any initiative and his limited understanding of the English language is a handicap.

So far he only put 5k into the company, the rest he is supposed to deposit into the company bank account once we are able to open it.

But the more important thing is that, almost by chance, a few weeks ago I discovered
that our business model was wrong. I discovered that clinics are the main consumers of our product and by selling our product b2c we were missing on 80% of the market.

So we had to pivot and rethink our marketing approach. Of course the numbers look very different now, our product has a much larger potential than anticipated.

Also, in the mean time, we received the first samples made with our mold in China and they look very good. We have a product now.

Considering that we are not satisfied with his level of involvement, that he didn't invest all the money yet and that the numbers we based our agreement on are not relevant anymore (by the way, it was me that discovered the new market and didn't need of his investment to find it) we would like to re-negotiate our deal or buy him out somehow.

We don't even need his investment now because since we are going to be selling b2b we are going to get the orders before manufacturing so there is no stock to buy upfront.

If he would have put all the money at once showing his commitment we wouldn't there to rise this issue, but he didn't.

Is it feasible?

Legally there should be no problem, the only thing that is binding us is a LLC with no assets.

But is it ethical?

Is that something business people do or are used to?

What would you do?
 

djbaxter

Administrator
Joined
Nov 10, 2016
Messages
2,208
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Interesting scenario.

If it were me, I would start by getting some legal advice. You may think that there should be no problem legally but you need to confirm that. Then get advice from the lawyer on how best to proceed.
 

Timmey

Member
Joined
Aug 4, 2020
Messages
2
Points
1
Interesting scenario.

If it were me, I would start by getting some legal advice. You may think that there should be no problem legally but you need to confirm that. Then get advice from the lawyer on how best to proceed.
I am not worried about the legalities of this. I cannot envision a scenario we end up involving lawyers. He is a friend and if we can not agree in a re-structure of our agreement or a way to buy him out I would just leave the agreement as it is and learn from my mistakes.
My question is more of an "ethical" point of view.
Is it ok to brig this up to him at all?
 

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