Best Company/Financial Setup for releasing a mobile app as a partnership?

reni10

I am about to release a smartphone app that I have developed with another person and we have decided to go 50/50 on any potential profits so what would the best way be to set this up from a financial or company perspective?

We are both working full-time so have done this app development in our spare time.

Of course there is absolutely no expectation that we will make serious money out of this and as this is our first project together we would be looking to set things up for free if possible or for very low cost.

We do plan to do more projects together as well so if we could setup to take that into account as well it would be great.

If anyone else has gone through something similar it would be great to get some advice.

reni10

No one got any ideas or experience of this at all?

dbran

Hi

Assuming that it will be a relatively small affair with little or no financial risk involved I would suggest a simple partnership.

If it gets bigger then form a company.

dbran

antoinolachtnai

1. How are you going to resolve disputes? 50-50 partnerships are difficult in that respect.

2. Who is going to own the intellectual property? If you go your separate ways, does it go to one of you or do both of you then have the right to do what you wish with the software? What about the trademark and the app store registration?

3. If the business generates cash, will you distribute the money, or reinvest it in the business? (Marketing, graphic design, all the other stuff)

4. If the company needs investment, how will you agree it? Any outside investment will fundamentally alter the balance of power in the arrangement.

It is important to discuss these things frankly. If you think you might do other projects as well as this one together, it is worth your time.

Here is an agreement that I came across on the Internet that might be helpful for you. I am not suggesting you use it as-is, but it might help you think through the issues.

http://www.australiandesignunit.com/wp-content/uploads/Sample%20JV%20agreement.pdf

This agreement does not create a partnership or provide for establishing a limited company. See clause 8.2(b) in particular.

Why does this matter? Because legal partnerships are deeply problematic structures, for arcane legal reasons and this is particularly the case in Ireland. This is especially the case if you don't have a well-drawn up partnership agreement. Should you worry about this? If you don't own any assets (like a house) then you might decide not to worry about this problem. If you do own any assets, and in particular if you co-own those assets in common with another person (i.e. a life-partner or spouse) I would say you should definitely not enter a partnership without formal legal advice.

Here is a link.

http://smallbusinesslawireland.com/tag/partnership-agreement/

And as a general guide, http://www.dilloneustace.ie/download/1/A%20Guide%20to%20Joint%20Ventures%20in%20Ireland.pdf (The arrangement in the Australian document, is, in terms of this document, a 'commercial alliance'.

If you want to absolutely minimise risk and bureaucracy, the easiest way to get things started would be to see if one person could be the 'prime' person with 50.1 percent of the interest in the business. In practice, this prime person might take on the formal responsibility and would have the final say if there was a dispute, and would have the first option to buy the other out. If the business grows, then you convert the arrangement into a company with the shares are split along those lines. You should reduce this arrangement to writing as best you can, making clear that it is not intended to enter a partnership. As soon as you see any growth in the business, you should convert the arrangement into a limited company.

It can all become very complicated and the reality is that business does get complex, and a small business can easily become as complex as a big one.

reni10

antoinolachtnai wrote: »

It can all become very complicated and the reality is that business does get complex, and a small business can easily become as complex as a big one.

Some good advice there thanks!

Is there any free or low cost service that we could use to setup the partnership properly without having to go to a Solicitor and pay big money for the same advice?

antoinolachtnai

No, not really. My view is that it would not be prudent to sign a partnership agreement without legal advice in any circumstance. Find an option that doesn't involve forming a partnership.

The most risk-free and cost-effective way of doing what you want to do is a limited company with a shareholders' agreement. But that is still not that cheap.

Why not just write a letter which you both sign, covering the issues 1-4 above, and any others you think are important? If the business takes off, form a company in due course. If not, write another letter and dissolve the whole thing and go your separate ways.

It's not a perfect arrangement, and there are all sorts of problems that could arise in a dispute later on but it is better than the partnership route and definitely better than nothing.

pedroeibar1

The points above by Antoineolachtnai are very valid and focussed. You need a written agreement. For a simple business model call it a joint venture and if it takes off you can convert to a Ltd. Company. I would actually go out of my way in that document to state that the joint venture does not constitute a partnership. A partnership, either defined or intimated is probably the worst route to take. Even if a written agreement sounds like overkill it will be a good means of clarifying your views on bringing the product to market and will also be a very useful learning experience for your next venture.