I'm 50% owner of a bootstrapped iPhone app. My partner cannot afford to invest more time and money in further development so I offered him to buy him out for $10K. He will accept the $10K with the condition that he keeps 5% equity. Up to now we've split all the development costs and paid from our personal bank accounts. Our ownership agreement is purely verbal so there is no legal paper work stating who owns what and how much. I'd like to buy his share using my company name and make everything official with the proper legal documentation. I just have no idea what I need to do so he can still own 5% of the app. Please help. Thanks!
How did you come to the $10K number? Based on revenue? Each of your contributions? Tough to answer this without understanding if the app is on the upswing or on decline etc.
Does he want 5% equity of the app or 5% residual royalties? My guess is that he wants to participate in the revenue. If that is the case, I would structure an X-year sliding deal that eventually worked him out of the app. It could be something like Year 1: 5% of PROFIT share. Year 2 3% of PROFIT share. Year 3 1% of PROFIT. Year 4? Nothing. It has to be based on PROFIT not REVENUE.
Structuring a company and then issuing "shares" in an app is insane to me given the likely lifespan of an app. Too much hassle.