When a client is offered ownership in a brand rather than a fee, the business manager's job changes from checking a number to judging a company. These are the questions that separate a real opportunity from an endorsement in disguise.
Key takeaways
- Start with who funds the company and who runs it day to day.
- Get the obligations in writing, for both sides, before you discuss percentages.
- Know exactly how the client can exit, sell or buy out the partner.
- Bring in independent counsel and a tax adviser before anything is signed.
Who is paying for it?
1. Who funds formulation, inventory, marketing and launch, and how much is committed in writing? 2. Is the client expected to invest any money, now or later, and what happens to the client's stake if more capital is needed?
Who is running it?
3. Who is the operating team, and what have they launched before? 4. Who makes product, pricing and distribution decisions, and where does the client have approval rights?
What does the client have to do?
5. What exactly must the client do to keep the stake: travel, product approval, content, appearances, launch events? Get it as a list with dates. 6. Are the operating partner's obligations written down just as clearly? Obligations should run both ways.
What does the client own?
7. What percentage, of which entity, and is it issued at signing or earned over time? 8. Who owns the brand name, trademarks and formulas, and what happens to the client's name and likeness if the partnership ends?
How does the client get out?
9. Can the client buy out the partner, and on what formula? 10. If the company is sold, what does the client receive, and can the client block a sale?
What does it cost the client elsewhere?
11. What category exclusivity does the deal require, and which endorsement income would the client have to give up? 12. What are the tax consequences of receiving equity, and is the structure efficient for the client's jurisdiction? This is a question for the client's own tax adviser.
The single most important question
Does the client actually care about this product? Ownership only becomes valuable if the founder shows up. A business manager who asks this early saves everyone a year.
Frequently asked questions
What should a business manager ask before a client takes equity in a brand?
Who funds and runs the company, what the client must do to keep the stake, what the client owns including trademarks, how the client can exit or buy out the partner, and what exclusivity and tax costs come with it.
Should a celebrity get independent legal advice on an equity deal?
Yes. The client should have independent counsel and a tax adviser review any ownership structure before signing.
Is equity issued at signing or earned over time?
Either is common. Some deals issue the full stake at signing subject to conditions; others vest it as milestones are met.