My boss has recently told me that he has to declare bankruptcy due to a massive client who never paid. He is offering me partner status in the next company and I could really use some outside advice. I’m 20, in college, and planned on going into sales. My business on the side hasn’t had any traction for a while due to my lack of connections, but my boss has consistently had work for my company since his network is huge. He’s s offering ownership in a new company which will have the services I offer, with his connections, as well as all of his contracts from the previous company, which is well into six-figures. I’d be bringing skills and labor to the table. He’d be bringing that, plus connections and current contracts/relationships.
Where do I start? This seems like a great opportunity but throws a wrench in my other plans. Any outside opinions, and questions are welcomed! I’ve never faced something like this and have no clue where to start.
One thing no one is saying: you need YOUR attorney to make or revie the contracts. AND, it has to be simple, easy, and cheap to get OUT. People don’t think about partner breakups or divorces. Both happen.
This is like a forest of RED FLAGS for you.
He doesn’t have the capability to raise capital. He has probably given you an ‘edited’ version of events.
No one with that many contacts/business savvy is going to go into a full partnership with a newly minted person who has no idea what is going on.
Tell him you have to wait until the bankruptcy is finalized, if you aren’t strong enough to give a hard no.
I bet a 10 imaginary internet points that his house/home is in foreclosure and that his personal credit cards are maxxed out.
It’s kinda like having a 60 year old guy trying to woo someone in high school. I love you, I really do, see all my cool stuff. Never mind my three ex-wives, they just didn’t get me. SEE MY COOL STUFF!!!
100% this. It’s very predatory…
Also the fact that he had failed businesses already, why would you want to be mentored by a failure
Personally guaranteed the loan for the business. Receivables never landed. Company would be created ASAP to continue serving clients, I am looking at 40% ownership, I’m struggling to estimate the time since I currently go to school. Would likely consider dropping out to give it my all. I will be continuing to work in the field, and service clients. He will likely do most admin work. Thank you for your input I appreciate it
Go for it if you are going to be 50% partner
You will get experience and soon have expertise for this venture or the one after this one
Don’t worry you are young and have time
Don’t apply or raise any liability under only your name. Do it under company name.
What happens when they find another non-paying customer in the “new” venture?
‘Partnership’? As in 50% of company? Know the value of the company. Co/owner own any assets? Know this too. Have you seen the financials? (Definitely REVIEW them closely!). Do financials make sense? Get “in line” for these things in case things go sour. Chances are, sooner or later, there will be challenges w/your partner &/or biz. GL.
You should ask him how much revenue he’s expecting. Also, what’s the start up cost going to be? At 60% equity just know he maintains all operational control. Might be a good learning opportunity for you but he needs to share a lot more information with you. If he’s filing for bankruptcy at this stage in his life is he someone who will be a good mentor/partner?
Take the gamble for 12 months. You’re young. The network alone is worth it. Capitalize while you’re there though.
I agree that you must consult with an business attorney who has bankruptcy experience.
However, First, you need more information.
- What is the owner’s plans regarding startup of a new company?
2a. What is the necessity of cause of going bankruptcy?
- For example: his large receivable would not a cause.
- His inability to pay rent could be a cause
- His inability to pay vendors/suppliers could be a cause
- His inability to make loan or lease payments to creditors could be a cause.
2b. Is his plan to bankrupt the company or liquidate the company and/or to file personal bankruptcy? {This is not an unusual situation if the owner’s business has a loan that he has personally guaranteed. In the case, the client who hasn’t paid, could impact your boss’s company’s ability to make his monthly loan payments. }
-
How long after the owner files does he plan to start up his new company? (The bankruptcy process should take 90-120 days if there are no slowdowns in the process.)
-
What % of ownership does he plan to give you?
-
How much do you have to invest into the company?
-
What role, if any, will you have in the new company?
It’s difficult to go beyond this without knowing anything about the company.
For example, If the company has physical assets that it owns such as; a building, vehicle, equipment, the Bankruptcy Trustee will order the assets liquidated with the proceeds going to creditors.
If you can get answers to the above questions which you can intern provide to an attorney, the attorney will be in a better position to advise you.
Best of luck.
Also get a cpa advice in addition to the attorney. The offering of stock/partnership in exchange for labor will be taxed as wages. You could possibly have a tax liability you weren’t prepared for
Not related, but was curious what your tech stack looks like for the website side of things.
Ownership stake in a business that’s filing for bankruptcy … includes you in the bankruptcy.
Don’t do it until after the business is solvent.
Couple of thoughts. If this is a personal bankruptcy that he “has” to declare, how is he going to set up a new business prior to actually going through bankruptcy proceedings. Or is he just basically having his former business declare bankruptcy but not personally? These details are important.
If you’re going to drop out of school he should be able to provide you with some expectation of earnings. And if you’re doing most of the work there should be a salary prior to your 40% owner benefit. Lastly, keep doing online classes or something. If this doesn’t work out you don’t want to feel like you wasted a year or two of your time.
Thank you for the advice and input
If he’s llc then he’s not really going bankrupt just the company is so he starts fresh I’d learn all I can cause one day he’ll retire his connections will end up your connections
Partners are on the hook for debts if uou are the president of the corp you are redponsible for all the debt depending on how the company is structured ,