How should the profits be shared?


1

Imagine a scenario where two people set up a business. They contribute 50-50 in terms of investment. They split profit between them. Over time, only one of the partner now works for the business. How should the profits be shared now?

Partnership Business Profit Sharing

asked Jul 28 '11 at 00:25
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Sid
44 points
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2 Answers


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I found this calculator very useful:
http://foundrs.com/calculator/index.php if the one founder does not work the same time as the other, he should have a matching compensation. If founder a, working for the business, does not have a "standard compensation", he should get all, until he has a compensation which exceeds standards. Then people need to recalculate.

answered Jul 28 '11 at 02:44
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Christian
3,590 points
  • Thanks, Christian! I found the calculator very useful. It is best for technology start ups. I am not in technology business, but it still gives me a fair idea of how the profits should be shared. – Sid 9 years ago

1

Profits should always be shared based o nthe ownership between the two partners. if the partners still each own 50% of the company-- then the profits should be shared 50/50.

This does not mean that revenue need be shared 50/50. Revenue should be spent according to the business's budget which includes compensation for the actual work done.

Is only one person is now working in the business -- they should receive all of the revenue associated with compensation for accomplishing the work in accordance with their employment or work agreement.

If you have the ability within the terms of your partnership agreement to purchase the equity position of the other when they are no longer actively working in the business -- then either you, or the business as an entity can purchase back the non-participating partner's shares so that they no longer receive a proportionate amount of profits. If that option is not in your partnership agreement -- it should be.

If you do not have work agreements or partnership agreements, or these agreements are not a fair reflection of what you would like them to be -- the first step would be to develop or edit them. Make sure that you have a clear understanding between the two of you of what those agreements should say -- in clear "normal" language before having the business' attorney draft them up.

answered Jul 28 '11 at 00:35
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Joseph Barisonzi
12,141 points
  • Thanks for the reply, Joseph. The problem is, they agreed to work together and later the other partner moved on to do something else. The partnership agreement does not have 'sharing of the burden together' clause. In this scenario, can the partnership agreement be changed legally? – Sid 9 years ago
  • If they both agree to change it -- yes. One party can not. It would be easier for the remaining partner to simply "restart" as a new company. – Joseph Barisonzi 9 years ago

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Partnership Business Profit Sharing