A business partner and I are creating a software consulting business. My role is the lead product developer (err, CTO?) that handles all technical aspects and he is the visionary interfacing with clients and community groups (err, CEO?). We get along well, and we now have the potential to make some money with the product, so he started an LLC and wants me to join as an equal member. The alternative is for me to work with him as a contractor, and I have other freelance software projects to support myself. What kinds of things should I consider when deciding to partner as a member of an LLC? We are not taking investor money or selling stock; we are providing a consulting service for a product that we developed.
I think my options are to partner as an LLC member, or have him pay me as a contractor. I believe partnering would ensure that I am credited for my work, but I'm not sure of the caveats. What criteria should I weigh in making this decision? If we partner, how can I ensure that we draft a fair and effective operations agreement?
If interested, here are some details:
This started as a passionate volunteer project, and I've devoted ~600 hours of free time, although he has since paid me $2000 out of his pocket. We are getting grant money and just got our first paying client (~$3000 contract). He wants me to partner so that we can share the LLC's bank account and make draws instead of paying me as a contractor. We agree that I probably deserve most of the money since I contribute more time and expertise, and my contribution is necessary to grow and maintain the product. I built ~95% of the platform. His contribution is the original idea and managing the marketing and networking.
Here are some other salient points:
- I want to continue freelancing because we are not making enough to pay me full-time
- Neither of us has a full-time job or much personal income or savings
- The product is free software, licensed under GPL
- I want to protect myself and get credit for my early contributions. I want to avoid getting replaced by another engineer when/if it takes off
- My partner's main concern is to have an executive decision when it comes to product vision and bigger picture decisions
- My partner's contribution is the original idea, a website describing the product, networking, and grant writing. He has little software engineering experience.
- My partner's contribution is ~600 hours, but spread over the last 2 years. My contribution is ~600 hours too, but over the last 5 months.
- Although my contribution is ~600 hours, much of it was trial/error and learning. An experienced dev could probably do it in ~300 hours. My skillset is that of a junior software engineer (~2-3 years experience)