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A friend of mine runs a small business. A few years ago he decided he
wanted a database system and hired a friend of a friend to write the
software. The business man paid for all the development of the
software and even helped and paid for the developer to setup his own
incorporation. Since he helped the developer setup up his corporation
the business man owns 51% of the corporation and then the developer
was not out any money. The software project went way over budget and
the business owner still paid all expenses.
Now, the developer in return charges the company $300 a month for a
license and sold the product to the competitors. The business man
thinks he is stuck now. Since this was a friend of a friend thing
there was no agreement in the beginning.
I would think that the business owner who paid for the software
development and owns the software company would own the software.
Who owns the software?
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On 17 Oct 2003 21:49:52 -0700
aaronsuperguy@yahoo.com (Aaron) wrote:
Now, the developer in return charges the company $300 a month for a
license and sold the product to the competitors. The business man
thinks he is stuck now. Since this was a friend of a friend thing
there was no agreement in the beginning.
=20
I would think that the business owner who paid for the software
development and owns the software company would own the software.
=20
Who owns the software?
If your friend wanted ownership of the software, he should
have employed the developer, instead of helping him to
create a business. Obviously, that business owns the software,
and the developer is doing what is best for his company,
that is, selling the product to as many customers as
possible, and selling service contracts.=20
Your friend is benefitting from the success of the software
company through his 51% share. He might resent the fact that
he has to pay maintenance fees, but they are a lot lower than
the cost of employing the developer full time. He can't have
his cake and eat it; the fact that there are other users of
the software reduces the maintenance costs, but gives his
competitors access to the same technology. It's probably worth
it - a good developer will command a salary of $2000 to $3000,
and database systems don't usually give one a tremendous edge
over the competition.
If your friend is a real businessman, he will have known this
from the onset (why else would he've set up a company with the
developer). Bitching about it now would be a display of incredible
na=EFvety, a trait rarely present in successful businesspeople.
--=20
Stefaan
--=20
"What is stated clearly conceives easily." -- Inspired sales droid
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This business man is very successful. He is also very generous. I
was told this project cost him $30,000 and he has seen no benefit from
owning 51% of the company. I also work in software and I know his
generosity has been taken advantage of. I am good at software, but I
am a horrible business man, so can you tell me what benefit he should
be receiving as 51% owner of the company?
If your friend wanted ownership of the software, he should
have employed the developer, instead of helping him to
create a business. Obviously, that business owns the software,
and the developer is doing what is best for his company,
that is, selling the product to as many customers as
possible, and selling service contracts.
Your friend is benefitting from the success of the software
company through his 51% share. He might resent the fact that
he has to pay maintenance fees, but they are a lot lower than
the cost of employing the developer full time. He can't have
his cake and eat it; the fact that there are other users of
the software reduces the maintenance costs, but gives his
competitors access to the same technology. It's probably worth
it - a good developer will command a salary of $2000 to $3000,
and database systems don't usually give one a tremendous edge
over the competition.
If your friend is a real businessman, he will have known this
from the onset (why else would he've set up a company with the
developer). Bitching about it now would be a display of incredible
na vety, a trait rarely present in successful businesspeople.
--
Stefaan
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On 18 Oct 2003 21:49:27 -0700, Aaron <aaronsuperguy@yahoo.com> wrote:
This business man is very successful. He is also very generous. I
was told this project cost him $30,000 and he has seen no benefit from
owning 51% of the company. I also work in software and I know his
generosity has been taken advantage of. I am good at software, but I
am a horrible business man, so can you tell me what benefit he should
be receiving as 51% owner of the company?
Assuming that the corporation is making money there should
be dividends an and/or increase in the assets of the corporation
(and presumably the value of the stock held by shareholders). If
there are no profits, then the money taken in is being eaten up
in expenses which might include salaries.
Your friend is the majority shareholder, and thus ought be able to
have a lot of say concerning who the directors are, and when a
dividend is declared. The process of exerting that control can be
lengthy and messy because dividends are declared by the directors and
not by the shareholders.
Perhaps the first step would be attempting a discussion with the friend to
determine what he claims is going on with the money before attempting to
get a look at the books. If the discussion is not productive, maybe
it would be worth discussing things with a lawyer.
Isaac
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"Aaron" <aaronsuperguy@yahoo.com> wrote
This business man is very successful. He is also very generous. I
was told this project cost him $30,000 and he has seen no benefit from
owning 51% of the company.
Why do you say that? The business got a sophisticated piece
of software that helps him run his business, he got 51% ownership
of it, and he got 51% ownership of a potentially profitably business.
What what you describe, it appears that he got everything he
wanted, and should be very happy about it. What's the problem?
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On 18 Oct 2003 21:49:27 -0700
aaronsuperguy@yahoo.com (Aaron) wrote:
This business man is very successful. He is also very generous. I
was told this project cost him $30,000 and he has seen no benefit from
owning 51% of the company. I also work in software and I know his
generosity has been taken advantage of. I am good at software, but I
am a horrible business man, so can you tell me what benefit he should
be receiving as 51% owner of the company?
In order to start a company, the founders must invest a minimum
of money (the amount depends on the country or state you're living
in, and the type of business). In return, they become shareholders,
and they can sell their shares if they no longer want to participate
in the business. The value of the shares depends on a number of
factors:
- The assets of the company (buildings, equipment, goodwill, etc.)
- The profitability of the company at this moment
- "Realistic" expectations of future profits.
Obviously, the company will need to be established (which is
the purpose of the original investment), and for a while it might
lose money (cfr. Amazon) and still attract investors, who then
speculate on the future profitability. It would seem that your
friend's involvement with the software business is of this
nature. Once a company starts making money, it should start
paying dividends, or, though re-investment of the profits,
increase the value of the shares. In both cases, the shareholders
benefit from the success of the company. Given today's low
interest rates, it's not difficult to offer a better return
than a savings account.
As I said earlier, a successul businessman would have considered
the risks and possible benefits before investing in a startup
company. The investment he made isn't huge (if you're posting
from one on the "developed" countries of the West), and it sounds
like the software company is enjoying a measure of success.
Why don't you ask him yourself if he's pleased with his
investment?
--
Stefaan
--
"What is stated clearly conceives easily." -- Inspired sales droid
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