Home' Trinidad and Tobago Guardian : November 22nd 2015 Contents NOVEMBER 22 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
FINANCIAL ROAD MAP | SBG7
igel, 27, Peter, 42, and
Richard, 33, became friends
after meeting at a network-
ing event two years ago. The
guys immediately hit it off
when they realised there was
synergy among them: Nigel, the quintessential
salesman; Peter the moneyman, and Richard,
the computer geek.
One day, whilst relaxing at a waterfront
restaurant, they talked about a potential part-
nership. Jotting down ideas on the back of a
cocktail napkin, they came up with a makeshift
business plan. After testing these ideas, they
realised they had something marketable and,
in just three months, they acquired their first
By the end of that year, they attracted four
more customers, proving that the business
In the early stages cash flow was slow. From
time to time, each had to chip in when the
business needed something important.
Fortunately, when they started the venture
Richard offered to use some of his existing
equipment—which would have cost them
$60,000—to get things off the ground. As the
business progressed, they decided to leave
whatever profits they generated in the business
bank account for reinvestment.
Word eventually got out that the trio was
doing great work and things started picking
up but not without challenges.
One job threatened to shut down the entire
operation when a customer suffered losses
because of an oversight. The team rallied
together and picked up the tab. This early
misfortune turned around when a request
came in for a huge project that would poten-
tially put them on the fast-track to success.
The downside was it required another piece
of equipment costing $97,000, monies the
business did not have.
They approached several financial institu-
tions but no one wanted to take the risk: the
business was new, it lacked assets and was
not yet registered.
In the end, they decided to walk away from
the deal because, apart from the heavy cash
investment, the project required a full-time
supervisor, meaning, one of them would have
to give up his job. Nigel said he would be
willing to take the plunge but needed at least
$8,000 every month to cover his car payments,
rent and other bills.
Seeing how discouraged his partners were,
Peter disclosed that he had saved up $250,000
for a venture of his own but might consider
redirecting some funds to the business. He
didn’t hesitate, however, to express his concerns
about the possibility of losing his investment
and added that he might be willing to take
the risk if 75 per cent of the profit was his to
Up until this point the friends agreed that
everything would be shared equally, but when
Peter put his offer on the table, the status quo
changed and morale slumped further.
There is an old adage that “partnership is
a leaky ship”.
This statement has significance but there
are many successful businesses that had their
genesis as a partnership. The word “partner-
ship” is often used quite loosely when people
are in business together but it is, in fact, one
of three legal entities—sole trader, partnership
and limited liability—that a business can adopt.
A sole trader, as its name implies, is com-
pletely owned by one individual. This person
is ultimately responsible for the entire business
to the extent of their personal assets and
beyond but the main benefit is that all profits
belong to the owner.
A partnership between two or more indi-
viduals, unless expressly stated otherwise,
means that all assets, liabilities and profits are
to be shared equally between or among the
partners. This entity also exposes each partner’s
personal assets to the potential liabilities of
Finally, the most complex of the three enti-
ties is a limited liability company which limits
risk exposure to the extent of each shareholder’s
stake insulating their personal assets.
In light of the incident with the client that
suffered the loss, each of the friends were
equally exposed from a personal standpoint.
Moving forward, they should consider reg-
istering a limited liability company to contain
this potential risk.
The informal arrangement among the friends
had a verbal understanding of equal share of
profits. However, with Peter’s offer, things
would change because of his request. Peter is
not wrong in seeking fair treatment or com-
pensation but the business is more than just
capital in financial terms.
Money on its own cannot simply generate
business. It needs the application of intellect
of each partner: Nigel’s sales skills, Peter’s
money savvy and Richard’s technical know-
how. Because of this, the overall success of
the enterprise can be equally attributed to
The issue of Peter’s large capital injection
doesn’t have to be addressed from a share-
holding standpoint. All three can still be equal
shareholders even with Peter’s role as significant
provider of capital. It means, however, the
business will owe him a debt. This debt will
be repaid based on prearranged terms and
conditions as relates to principal and interest
versus a share of profit as he suggested.
In this way, it preserves the team’s morale
and maintains an equitable share of vested
interests. The team can agree on some nominal
share investment—say 300 shares per person
at $1.00 each—with anything more being treat-
ed as a debt due to a director.
Part of the capital structure of the business
would also be retained earnings when the
company makes a profit. They can decide to
withhold all of it for reinvestment or distribute
part as dividends. An interesting point to note
is Richard’s use of his equipment was for the
benefit of all and there was no mention of
compensation to him. He can decide that the
value of the asset be passed to the company
with his consideration being his contribution
to share capital and/or a loan. He can also
offer his equipment on a rental basis so he is
adequately compensated for its use.
Of course, if his and the new equipment
are owned by the company, there is the advan-
tage of using depreciation (wear and tear) as
a tax benefit.
As regards to the extent of Peter’s capital
injection, it would most probably have to be
more than just the value of the new equipment.
Based on the company’s existing cash flows,
it would need help to cover Nigel’s salary for
at least six months or until the project is com-
plete; at which point the business would be
in a better financial position.
Roles and responsibilities
Each partner will have different hats to wear.
The first will be that of a shareholder, enti-
tling them to dividends and having voting
rights on company policy and management.
Then there is the role of director responsible
for strategic direction and its compensation
in the form of a fee or stipend.
Finally, there is the hat of employee, which
Nigel would take up at the tactical level and
paid in accordance with his particular job
If you have any questions or need advice
on today’s subject please email me at: nick-
email@example.com or visit website:
work for you
Links Archive November 21st 2015 November 23rd 2015 Navigation Previous Page Next Page