 Contracts!!! All I want is to be FAIR no more no LESS
Hello Forum,
I am a long time first time!
I am in need of advice and I apologize for the novel displayed before you. I just wanted to make sure that I am being clear as possible with my issue.
Last night I met up with a few artists that I would like to design my line, and as we were discussing contracts it seems as if they want their cake and eat it too. I truly am a selfless person who is only trying to be one thing…fair. I believe in karma and doing the right thing by all. I understand one hand washes the other in any relationship, never mind business.
I don’t have as much capital as I would like but I believe that my hard work and desire will supplement for the lack there of. With that being said, I have vested so for a little over $5,000 and plan on putting another $10,000 to $15,000 to get things off the ground. I know it is not much but it should get me to a point where I can see what is working and more importantly what is not. I am also able to get more for my dollar, as I have 3 artists and graphic and web designer working for no upfront pay however, that is where confusion settles in. I know, I know, hind site is 20/20, and I should have had contracts in place from day one.
Before I get into the details I understand that the consequences that can occur by giving up ownership of a company, and how the relationships change over night. That is why the LLC is set-up as a single member for now and is subjected to change with time. So here are some details:
Equity Details:
Capital: 100% Mine (at this point)
Sweat Equity (up to this point):
· 85% ME
· 5% “A”
· 5% “B”
· 5% “C”
People Involved:
Founder: ME
Artist:” A”
Artist: “B”
Artist: “C”
What would be the FAIREST strategy to make sure everyone is compensated not only their work, but also their belief in the company. Here is an example that was presented to me which I find wrong for many reasons however, I am willing to work within the skeleton of the idea but no business man in their right mind would conform to this arrangement.
Example (completely rough numbers):
$ 10.00 total GOGS
$ 30.00 Suggested Retail
$ 20.00 Profit
The Profits/shirt is based off of a break-even-analysis payment system. There would be NO charge at all for the art created. I also would not be obligated to pay the artist until we sold enough shirts to pay the cost of doing the run. Everything after that would be 50/50 split. From a risk stand point it cuts it down dramatically. From a profitability/growth stand point the company takes a pretty big hit. How? Well, each artist also wants 10% of the company. So they not only want 50% of the profits every time their art sells but they also want return on investment in the backend. Hence, eat their cake and having it too.
This is the part that I am having a really touch time agreeing with and for many reasons. First off, I understand for a company to grow, you need to bring your cost down and ultimately increase profitability. You do this by reinvesting back into the company and having more capital for purchasing power, simple business 101. I wouldn’t be able to do this with profits being split 50/50. Secondly, it also doesn’t make sense to reinvest my 50% back into the company for growth, knowing that money is only making their 10% more. This much money being paid out on every run is only going to hinder the growth potential.
I would love for the artists to have a long term vested interest in the company, as I know good artist are hard to come by. I also have no problem giving up ownership of the company under the right terms. However, this formula doesn’t motivate me to want to conduct business. So basically I really don’t know what to think of all this expect for the fact that it seems skewed in the artist favor. I mean in a perfect world, I would hire them as full time designers. As we all know that is not an option for a start up company. I also would pay fair wage under a Work for Hire contract but they don’t want to work under those terms. So I lean on anyone that can help me find a way to make this situation a win-win. Even if you don’t reply I do appreciate you taking the time to read my post. I hope for some this is a learning experience to figure out the contracts in advance.
Thank you much,
SS
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