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Deal Structure When Joining an Existing Business

760 Views | 4 Replies | Last: 3 days ago by Agilaw
ceatm07
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TLDR How should a colleague and I structure my initial deal as a partner in a small business that he started on his own?

I have been asked by a colleague to partner with him going forward in a small commercial development business that he is looking to scale. The idea is that we eventually grow this in a way that allows us to leave our current careers and operate a successful development company with assets in multiple markets across Texas. However, I am struggling with where to begin the conversation of how this partnership will be structured.

He is currently in the final phase of his only development which is in the debt/equity sourcing stage for construction. The land has already been paid for from the previous phases, construction drawings are 75% complete and a GC has provided a budget. I share this to give you an idea of the fact that this business was his idea, he took the initial risk on the development and has been successful thus far.

I am getting involved quickly in meetings/calls with lenders, potential equity partners, etc., but I want to be realistic and fair in the sense that most of the risk and leg work setting up this final phase has already been done by my partner while I would anticipate managing the contracts, buildout, lease/sale.

TexAgs experts…does anyone have thoughts on how my involvement in the final phase could be structured (i.e. equity w/ pref + % of profit + development fee or other) and then again for how the future deals should look if we are ultimately planning to be more equal partners in this business?
lb3
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AG
Will any other projects be started before the current one concludes?

If no, it might be easiest to just pay you hourly and pull the equity from the company before forming the partnership and recapitalizing the firm.
Goldie Wilson
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Are you bringing additional capital to the venture, or just know how? Whats the anticipated profit split?
aggiebrad16
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AG
This first deal you're jumping in on sounds like it needs to be a separate deal from the go forward developments in the future that you'll be a part of from day 1.
Agilaw
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AG
Do you have experience managing contracts, buildout, lease/sale? If not, I would highly recommend getting professional assistance as you start down this path as it is not wise to just "learn as you go" on these types of transactions. As one other poster said, are you bringing equity to the table on the first transaction, on additional transactions? Do you plan on holding the first venture for a few years or is the goal a build, lease up, and sale? Do you have access to potential investors? Etc. Not really enough information to give solid advice.
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