Help me understand a revenue sharing problem


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I am part of an LLC with multiple members. We have multiple revenue streams, and expenses that are shared across the revenue streams.
One revenue stream is suppose to be split 50% to the person that brought in the business and the other 50% to be split between the other partners.
We have several other revenue streams that are shared straight across by our percentage of ownership.

What is the fairest way to honor the 50-50 split on the one revenue stream understanding we carry GnA and operational costs.

LLC Accounting Method Profit Sharing

asked Aug 1 '12 at 05:28
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Steven Holcombe
1 point
Get up to $750K in working capital to finance your business: Clarify Capital Business Loans

2 Answers


1

Welcome Steven. I'll try and give an answer here - but it's only an opinion: I would think it would be better to have a sit down with all relevant parties and hash out something that seems fair than accept an approach from someone out of the blue.

That said, I'll assume that the 50/50 rule applies to internal and not external members. I would think it would be fair to have GnA cut out before the proceeds are distributed. I would also think that (if applicable) any T&E costs would be reimbursed to the individual before the split.

answered Aug 1 '12 at 05:55
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Jim Galley
9,952 points

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Have a Minimum Profit Margin. It is not unusual for partnerships and LLC's to be set up so that partners/members share expenses and revenues in different proportions. I think I see your point about fairness, though. Bear with me....example 1 shows the problem I think you're talking about, and example 2 shows a solution (if I'm right about the problem).

Example 1: The Problem -
In an 11 member LLC, one member brings in business that requires $77 of expenses to produce $100 of revenues. Assume members share expenses equally.
Final result: One member makes $43 ($50-$7=$43). 10 members lose $2 each ($5-$7=$2 loss).

Recomendation: Institute a policy that mandates a minimum operating margin. See Example 2.

Example 2: The Solution -
In an 11 member LLC, one member brings in business that requires $55 of expenses to produce $100 of revenues. Assume members share expenses equally.
Final result: One member makes $45 ($50-$5=$45). 10 members make $0 each ($5-$5=$0).

In example 2, all members start making money if expenses are less than 55% of revenues (assuming expenses are carried equally by all members). Steven, your LLC will will no doubt assign revenues and expenses differently, but I think these example make the case for instituting a minimum profit margin policy.
Good luck.

answered Oct 11 '12 at 04:55
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Dear Accountant
39 points

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LLC Accounting Method Profit Sharing