Legal Question in Business Law in California

What kind of business agreement?

A friend of mine invented a product and has developed prototypes and has obtained a manufacturer. He knows how to do everything except the marketing. He wants me to run this business and get this thing sold. I do not want to proceed without some amount of certainty that my efforts and personal expenditures will be rewarded. Do I want ownership in this company? If so, does he just add me to the list of officers and award me 40% of the stock (what we discussed) or am I better off with an agreement giving me some percentage of all future profits and not have any ownership in the company?


Asked on 4/25/09, 1:06 pm

2 Answers from Attorneys
Glenn Truitt Truitt Law Group

Re: What kind of business agreement?

Ownership in the company always sounds like a great idea to start with, but then you realize that with significant stock ownership may come significant tax liability - if the entity is an LLC or an S-corporation. Additionally, being a significant shareholder comes with obligations BESIDES just sharing in the upside.

As has already been mentioned, there are a LOT of moving parts to this decision - but if it's something you've not yet considered, you might want to check out Phantom Stock.

http://en.wikipedia.org/wiki/Phantom_Stock

Let me know if I can be of additional assistance and GOOD LUCK!

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Answered on 4/27/09, 6:27 pm
Deborah Barron Barron Law Corporation

Re: What kind of business agreement?

Who owns the patent? The corporation or the individual? Sometimes it is more advantageous to get a percentage of sales, or ownership in the patent or product. But the stock may go up in value, in which case you may be better off with stock. I would need to know more details to advise you. Reply by email or call my office.

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Answered on 4/25/09, 1:29 pm


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