Trying to decide between Partnership vs Contractor

[Hoopz]

I have an opportunity to secure a contract that would fund a startup and small team for two years.

This contract requires 2 primary areas of expertise: Engineering + SEO. I have the engineering expertise, but not the SEO expertise. A good friend of mine and ex-co-worker is an SEO guru, so I reached out to see if he had any interest in collaborating. We're meeting later this week to discuss.

Turns out he's been thinking about starting a business for a while, and totally unrelated, he already had an LLC with 1 client. This turned out to be awesome news, because he's a great guy and we work together very well. Perhaps this is an opportunity to start a business together, with 2 founders who have strong expertise in the areas we want to do business.

I'm familiar with setting up LLCs, and I've been through the process of setting up co-founder agreements. What I'm trying to figure out is, do I go down the road of partnering with him? or do I just contract his LLC?

I wouldn't feel comfortable starting a business where I know nothing about one of the areas. So it's really appealing to me to have a partner in the business who has the SEO expertise.

The other question I have is, if I go down the path of partnership, what's a fair split? He has an LLC with 1 client (albeit, not large enough for him to be full-time). My contract would be a huge step up. I'm a fan of being fair and thinking about the long term. Do we go 50/50 with a finders fee? or is there another way to structure?

Thanks!

 

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[fhs8]

I have an opportunity to secure a contract that would fund a startup and small team for two years.

This contract requires 2 primary areas of expertise: Engineering + SEO. I have the engineering expertise, but not the SEO expertise. A good friend of mine and ex-co-worker is an SEO guru, so I reached out to see if he had any interest in collaborating. We're meeting later this week to discuss.

Why not just learn SEO yourself? SEO as it was in the past is pretty much dead now. All you need now is good content and a nice website layout. You can't trick Google by having a bunch of keywords anymore. If you need content just hire someone or do it yourself? I don't see why you'd shoot yourself in the foot by giving away half the company.

I'm familiar with setting up LLCs, and I've been through the process of setting up co-founder agreements. What I'm trying to figure out is, do I go down the road of partnering with him? or do I just contract his LLC?

Depending on the agreement, members usually can put in money into the LLC in order to gain a higher ownership percentage. This is problematic since whoever has over 50% can do anything they want basically and if they do something against the rules you'd have to spend money in court to fight it. So you might always be at war with a partner putting just enough money to go over 50% and take control of the LLC.

LLC's are also more complex and harder to raise capital for. Depending on the state you're in an LLC could cost more in taxes per year and an S-corp. You can get by this though by electing to file taxes as an S-corp.

I would avoid partnering with anyone else. What if your partner wants to do something else, is lazy, misuses money, embezzles money, wants to make a bad decision, wants distributions when the company needs cash, etc... ? It's just additional risk and hassle you don't need.

What about the contract? Does that mean you'll lose even more ownership stake in the company?

How about this. Let's say I want to open a fast food restaurant. Should I partner up with a cashier 50/50 or just hire a cashier? That's literally what you're asking.

 

[Hoopz]

Why not just learn SEO yourself? SEO as it was in the past is pretty much dead now. All you need now is good content and a nice website layout. You can't trick Google by having a bunch of keywords anymore. If you need content just hire someone or do it yourself? I don't see why you'd shoot yourself in the foot by giving away half the company.

I don't agree with this perspective. I've worked along side SEO professionals for years and while there are core principles that are simple, I'm hesitant to minimize the expertise that is required to manage SEO at the scale I'm looking for and the scale my potential client is looking for. Throw SEM in the mix and you can definitely screw your clients over as well as yourself. I'm more than comfortable speaking intelligently about SEO, but I'm not about to try and get a 2 year contract on that basis alone. On top of that, I don't want to minimize the amount of engineering oversight that will be needed if I land this contract. I don't want to set myself up to fail.

I would avoid partnering with anyone else. What if your partner wants to do something else, is lazy, misuses money, embezzles money, wants to make a bad decision, wants distributions when the company needs cash, etc... ? It's just additional risk and hassle you don't need.

I've had messy partnerships in the past, and this is definitely an argument in favor of contracting him instead of partnering.

What about the contract? Does that mean you'll lose even more ownership stake in the company?

How about this. Let's say I want to open a fast food restaurant. Should I partner up with a cashier 50/50 or just hire a cashier? That's literally what you're asking.

This is not a fair comparison. If I was talking about partnering up with a coordinator, then I could see your point. I could train a coordinator just as I could a cashier. But, I'm not going to minimize the expertise that either of us bring to the table.

 

[SWB]

Contract initially and if it is still working in 12 months bring him in as a partner.

 

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[Chris Kelsey]

Keep him as a contractor until you've worked with him for at least 6 months.

 

[OldFaithful]

Before you take on a partner please read this GOLD thread.
https://www.thefastlaneforum.com/co...-but-am-happier-and-stronger-than-ever.62925/

My suggestion would be to take the opportunity/contract and subcontract the SEO work to your friend. He'd be glad to get the work and in a year you'll be glad that you still have control over your project.

If you need to setup a business structure like an LLC, it's not that hard, but it's not always necessary either. There are a number of threads here with good advice on business structures.