How to Make Sure Your Sweat Equity Pays Off
Are you working for or with a company that has promised you ownership or profit sharing? Do you have this promise in writing?
I recently met with an intelligent go-getter who was a bit naive about business. Two years ago he began doing business development for a local company. The owners of the company had promised to reward him for his work and had endowed him with a title that made him sound like an owner, though in reality he was only an independent contractor. The owners’ promises were never reduced to writing and two years later, after having built the company’s entire client base, this client has nothing more than a fancy title, a meager salary and a pretty solid noncompete agreement that prevents him from starting his own company.
I suggested he approach the owners of the company and respectfully request that the operating agreement be amended to award him equity in the company based on the clients he’s brought to the table. The owners scoffed at him and refused to share in the wealth this particular client built.
The moral of the story: if you’re getting into business with other people who are promising you equity, ownership, or some sort of profit sharing in the results, make sure there is a written agreement to that effect. This goes for employees, independent contractors, and companies entering into joint ventures with other companies.
The burden is on you to prove the agreement existed and the easiest way to do so is to have something in writing.
Remember, never do business on a handshake.