Are partnership payments divided up before or after expenses are deducted?


I recently started an llc with a partner..50/50. We both work on client, the money goes into the business account, and the expenses come out of the business account. We have set it up so that what ever money is left after expenses are paid, gets divided according to services rendered. If partner A does 60% of the services and partner B does 40% of the services, then they each get paid there percentage of what is left after expenses. My question is this: do the monthly expenses get paid off the top and then the $ is divided according to services rendered, or does each partner pay 50% of the expenses and then the spoils are divided according to services rendered?

Partnership Expenses

asked Jul 26 '11 at 01:24
1 point

2 Answers


The actual answer can only come from your operating agreement, which you should read. Don't have an operating agreement? Stop everything and go get one. You need some kind of written, signed document that clearly states what each party's rights and responsibilities are.

The norm would be that you split the profits, not the income. That means that the expenses are paid off the top, then you split the profits according to the formula you came up with.

As Jeff correctly mentioned, you do need to decide:

  1. What to do if expenses exceed income
  2. What the policy will be on expenses (can either of you spend any amount you want on any expense?)
answered Jul 26 '11 at 12:01
Joel Spolsky
13,482 points


Sounds like you may need to set some ground rules on expenses. What would you do if the expenses put you in the red? Would you still do an even split? Are there any limits on expenses? You two need to decide.

answered Jul 26 '11 at 03:16
Jeff O
6,169 points

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Partnership Expenses