Hi,

Myself and my business partner are on the brink of starting our own company.  We have been offered finance by a very generous man (seemingly).  But being quite new to this game we're unsure about how fair it is.

To start up, he believes we will need £75,000.00 and that this should cover us for the first four months, untill we start spinning our own profit.  To raise this he suggests splitting the company into 100 shares and selling them off at £750 each, and bingo, we have the cash.  Of course, the shares pay yearly dividends.  If we meet ours (and his) projected turnover/profit for the first year, the return on investment for all financiers would be about 90%. 

As newbie business starterisers, myself and my partner do not have the capital to buy significant amounts of shares in the startup.  Things as they are would point to him and his co-financiers owning about 90% of the shares, if not more.

Now I have no issue with this in theory, and he is giving us the opportunty to buy shares ourselves and reap the same benefits from our work that he will (from not working!).   What irks me is that a) within 18 months he will have gotten 100% or more return on his initial investment, and this money will continue rolling into him as long as we turn a profit through our blood, sweat and tears, and b) as time progresses we should be able to buy shares, but their value will have increased to a point where once again, we can't get a significant number.

It also sits a little uncomfortably with me because our new company would be a client of his existing companies, and as such, he would be paying himself twice for our work.

Is this normal financier behaviour?  Could we fight for a better deal since we are the ones with the expertise, skills and contacts to make the company happen?

Does anyone think a contractual agreement could be reached whereby once he has recieved 150% or so return on his initial investment, a large portion of the shares are bought back by the company, reducing his stake to a third, or so, and increasing the capital of the company?

Hope someone can tell me if the deal spelled out above is normal and ethical behaviour, or if we are being bent over a barrel.

Thanks!