Got Family Quick Bits: Alternatives to Ownership

Hello this is Got Family and I am Carey Berger and today we’re going to talk about alternatives to ownership when somebody wants to be your partner. What happens here is somebody comes in and they say, “I’ll loan you money and you make me a partner.” Okay, great. What does that mean? Well, sometimes what that means as we’ve talked about in other settings, is a whole bunch of baggage and potentially misunderstood relationships. How do we clarify those relationships? By calling them what they are. There are different levels of “ownership,” and let’s talk about that. I bring in money and I want to be at no risk beyond that money and I want to get a steady amount of interest and I don’t want to have to worry about drinking behind anyone else, I get to go first. I’m a banker, okay? So, I’m putting my money in and I get out first before anybody else. I’m not really at risk anybody else is behind me and I get interest rate that is banking. That’s a loan. Second status, okay fine, I bring money in and I only want to lose that money. I don’t want to risk my personal guarantee, but otherwise I want all those other things that are like an ownership. I want to be able to participate in the larger upside and I’m willing to go down to zero and never get repaid if I have to. I just don’t want to risk me personal guarantee. That’s a limited owner. You can call it a special class of shares, you can call it a number different things. But either way they are still different from the third class which is a true partner or true fellow shareholder or member of a limited liability company, those are all of the technical terms. But nonetheless, that third one, the true ownership as we think of it, that’s the one where I am potentially risking everything. If things go wrong I have my name on the personal guarantee. If any one partner has their name on the personal guarantee then anybody else who wants to claim to be a partner should also be on that personal guarantee. If they are not they’re not at the same level as a person who is. That’s the key distinction; recognize the level of involvement, recognize a level of commitment and from there you can recognize how you compensate them as well as how you manage the question of, “but I decided I want ownership.” Great! Here’s what it means to be an owner. If you want to be owner here’s the personal guarantee. “I don’t want that.” Great! Then that means you want a different type of ownership; here’s the other offer, That’s how you manage this conversation. And hopefully by managing the expectations and understanding the different relationships of what type of ownership a person is in, it will help you to build and preserve your business and your family, right here at the crossroads of business and family. This is Got Family and I am Carey Berger.