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Partnership Terms Advice

I was a window application developer and had developed few sharewares that were earning bread for me, then the sales started going down from 2011 second quarter . Then after sometime in mid 2012 I tried hands into app development and started working on projects for a firm as a freelancer.
From last 6 months i am working on elance under my own account and getting good response from there also. Although i have some app ideas of my own and will be launching one app in mid march, but freelance has become a good source of income for now so i do not want to quit it for now.

Now there is one employer on elance to whom I gave my proposal  for a project is asking me to become his partner in this iPhone app project. The idea is good and also i am interested in partnership for the app. Ill be handling the coding part and he will be handling the marketing part and also its his idea.

The plan is to launch a iPhone app first and when the app becomes successful then going for android version also. The development cost for the iPhone app that i gave him is $2000, also he will be investing his time and around $1500 on the app marketing.

Now he is asking me to give a proposal for the partnership. I am not interested in 50-50 partnership and neither is he. So i am struggling between two questions here and will be thankful for any suggestions and help:

1. What should be terms if i want to have a 25% share in the app.
2. I do not live in USA and he is a US citizen so what will be the best and economic way to have a legal contract/deed to represent this partnership.
Apps Now Send private email
Saturday, February 08, 2014
Well at some level you should be aware that if there is ever a problem the cost of litigating a contract dispute internationally is going to be exorbitant, with little chance of success. When such contracts are enforceable is when one party has some sort of business presence in the other nation. Such as McDonalds opens a store in China. The contracts are written under Chinese jurisdiction. So when there were disputes, such as when the Chinese state confiscated the restaurants they had just built and opened up Chinese state run McDonalds clones, McDonalds was able to bring a court action, which of course they lost, after paying millions to Chinese state employed lawyers. The point is that they were at least able to sue.

So, realize any contract you sign is most likely going to be legally useless from a practical point.

The contract can be helpful though in making sure there is an understanding of both parties.

Ultimately it comes down to if you trust the other person, and whether it will cause them problems if you stop working with them if they ever screw you over.
Scott Send private email
Saturday, February 08, 2014
+1 for Scott.

Based on the numbers you give, I suspect a partnership is not a good idea here:

First, you are talking about $2000 worth of development and $1500 of marketing, so forget a formal contract. The lawyer's fees could easily be in excess of that just to draft  the contract, and that's without even going to court.

Second, deals along the line of "I am going to develop ______ and then you will do your marketing magic to sell it." can easily go as follows:

Step 1: you produce the software
Step 2: nothing happens.

Problem is that your job is well defined, but when you are done, you have a product to sell and from the "marketing guy" point of view it's just another product to sell. He'll give it a try and if it doesn't work out fast, he will just drop it and move onto something else because he really isn't invested in it.

Now, you have an app, no sales, and if you end up rolling your sleeves and doing the sales job yourself, your "partner" will end up owning a share of it.

I think you would be better off doing one of the following:
1. Sell him the app - $X,000, all his.
2. Treat him as a "privileged reseller" with a big commission on whatever he sells, no exclusive rights.

If you are positive that your idea is a great idea that will make tons of money, go with number 2. Otherwise, go with number 1.

To me, if you only want a 25% share on your own product, you either don't really believe it will make cash or you need the money. Just sell it.

And don't worry about missing out on the app success: if it has any success, he will need you to take care of the app maintenance, updates, features and new versions, so you would still get income from it.
Sylvain Galibert Send private email
Sunday, February 09, 2014
Thanks Scott  and Sylvain for the advice.

What if I create an LLC in USA then that LLC register a partnership deed with him will it be better?

I think i was unable to explain the situation in details here(not good at this) so Sylvain is assuming that the idea is mine. Actually app idea is his, and I came in touch with him through elance where he posted a job for a app developer and i applied for the job.
Apps Now Send private email
Sunday, February 09, 2014
From practical perspective, forming LLC in US won't help you. As Scott said, your chances of enforcing a contract in US if you're not in US (and most likely can't afford to hire a good lawyer to represent you) are slim.

Plus, forming LLC will cost you at least a couple of hundred bucks to setup and every year after that (http://www.legalzoom.com/llc-faq/llc-operating-costs.html). Given that you expect to get $2000, it would be a large portion of your income.

What is unclear to me - will you get your $2000 *and* 25% of future revenues or is he proposing 25% *instead of* paying you $2000?

Usually people get ownership because they give up something (e.g. the fee they would have been paid to develop something).

If you're not giving up anything then the mechanics of the partnership don't matter much - at worst you get completely screwed and don't get the money you never had.

If you're giving up e.g. $2000 you would have otherwise been paid, then the right way to think about it is: you're investing $2000 of your own money into this venture for 25% of future (and very uncertain) profits with a person living overseas that you don't know.

If you were not a developer, would you  make such an investment?

I wouldn't but maybe you have a different risk tolerance.

As a side note, given that this is Business Of Software forum, what I would recommend is that you build products that you own 100% and get 100% of profits.

 If you're capable and willing of developing an complete app for someone else and willing to be paid nothing (or less) for partial ownership, you're taking all the risk (of product being a failure) anyway. There's really no downside of doing it all by yourself and getting full ownership, not just partial ownership.

Ideas, unless patented, are free to use and there are plenty of ideas to go around. Don't expect great success the first time, but the more products you build, the bigger the chance that one of them will be very profitable for you.
Krzysztof Kowalczyk Send private email
Sunday, February 09, 2014
BTW: if you're a good iOS or Android programmer, then you can easily make $100/hr doing contract development for US clients.

The market is booming and demand is still way bigger than supply.

You just need to market yourself better.

Have a website.

Describe all programs that you have created. Post screenshots, technical details (lines of code, challenges you overcame etc.), links to app store.

Preferably have some open source code on github so that serious clients can look at your code. Many iOS and Android programmers create re-usable components just as natural part of working on apps.

Blog about iOS or Android-related technical topics.

Have a visible text on all your pages "I'm available for iOS contract programming at $50/hr. E-mail foo@bar.com to get in touch.".

Once you get (and fill) a couple of those, change that to $80/hr and then to $100/hr and then to $120/hr.

Each time you complete a project, add it to your portfolio (i.e. write about on your website).

elance is not a good place to get good contracts. Most of the people posting projects there are only attracted to low prices and don't know much about creating successful projects.
Krzysztof Kowalczyk Send private email
Sunday, February 09, 2014
@Krzysztof Kowalczyk

>>What is unclear to me - will you get your $2000 *and* 25% of future revenues or is he proposing 25% *instead of* paying you $2000?

Actually i was thinking of something as instead of $2000 i can propose $1000 and 25% partnership in it, so ill get a minimum wage for my work here.
Apps Now Send private email
Sunday, February 09, 2014
A more in-depth explanation of why it's better to work on things you own: https://training.kalzumeus.com/newsletters/archive/do-not-end-the-week-with-nothing
Krzysztof Kowalczyk Send private email
Sunday, February 09, 2014
So the split is slightly better but still, the right way to think about it is: you're investing $1000 in a business that has a high chance of failing, owned by a stranger you met on the internet, with realistically zero chance of resolving a dispute if he chooses to screw you over, where you do all the initial work.

Like I said, I wouldn't.

Don't think about this offer in isolation. Think about opportunity cost.

You could be working on another e-lance project paying $2000, risk free, for the same amount of time.

You could invest this time in marketing yourself better so that you can get $100/hr contracts in the future.

You could be working on software that you own 100% and would get 100% of profits, without the risk of being screwed by a stranger.

You need to think about which of the above options is most compelling to you and do that. Don't get hang up on a single opportunity just because it's available right now.

Finally, don't over-analyze things. The worst that can happen is that you spend some time, you learn some things but won't make any money from it. Not great but also not a big deal, so if you really want to do it, then do it.
Krzysztof Kowalczyk Send private email
Sunday, February 09, 2014
I don't know a lot about contracts but this blog might help:

I tend to be very optimistic and I like the idea of owning a % of profits forever over a one time flat payment, so my inclination would be that if it's a project that you would like working on and you have had enough contact with this person to develop a rapport and feel good about it, I want to say "go for it."

However, there is something that concerns me about this...

I can think of two reasons HE would want to go into partnership with someone rather than just pay for the labor so he's own the product outright:

1. He can't afford the labor.

2. He doesn't really think the software will make as much as it will cost me to have it programmed, so he's trying to exploit you thinking he'll get $2,000 worth of development out of you for less money. 

Looking at #1:  $2,000 is NOT a lot of money in the US.  If this person can't come up with $2,000 to pay for the programming that indicates he's either inexperienced or incompetent.  If so, the odds are high that even if the final software is fantastic he may not really know how to market it. 

At the same time -- nothing ventured, nothing gained.  The biggest things I've done to advance my business were the result of being open to the idea of partnering up with someone I didn't know too well.  (Though not quite at this level.)

If you are OK with the idea that you may be out the effort and you really want to pursue it regardless, I'd be inclined to give it a try.  But like Scott said, just know that you would be hard pressed to enforce an international contract.  Of course he would too so if he goes rogue on you you could probably go rogue right back on him...

Good luck!
Emily Jones Send private email
Sunday, February 09, 2014
I just thought of something else after reading other people's comments.

You said the software is a good idea.  Do you think YOU could market this software?

If so, you could include in the contract that he will make a minimum number of sales in a minimum amount of time, and if that doesn't work out, then ownership of the software reverts to you, and you can market it yourself, license it or sell it outright to someone else. 

This will protect your labor investment and if he's confident in his marketing abilities, he should not object to it.  If he balks at this, it may be an indication that he's not as confident about selling it as he claims.
Emily Jones Send private email
Sunday, February 09, 2014

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