International Law

Buying a Franchise as Partners

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Seth Godin has some useful advice for potential partners who want to buy a franchise or some other business, but I would change one aspect of his advice.

"My best advice is to say,

"Today, right now, your contribution is worth 5% of the company and my creation of the company is worth 5%.

The other 90% is based on what each of us does over the next 18 months.

Here's a list of what has to get done, and what we agree it's worth."

This is very useful, but standard incorporation documents will not allow you to have invisible shareholders.  You could issue treasury shares in the amount that each person made the defined contributions.  Very interesting idea.

What is Seth wrong about?  What would I change?

"Another tip: put in a clause appointing a trusted third party as an arbitrator, so small disagreements don't snowball into litigation."

I would not advise arbitration if you want to maintain the relationship; rather I would put in a clause requiring mediation, and specify what type of mediation that you are looking for: a facilitator or evaluator.

Full post as published by Misleading Advertising Law on March 19, 2009 (boomark / email).