Re: Sticky Partnership Issue

Hi, Gerard,

Since you will be footing the financial start up costs, it would seem fair that you get a greater proportion of the profits as compensation. This, however, can lead to friction later, if not sooner, because then the question arises: how long should your extra compensation be continued?

Another way to handle things might be for you to make a loan to the company with interest and a set payback arrangement (could be a percentage or a flat amount). This avoids the unequal feeling of the other arrangement.

I'm not a lawyer and this is not legal advice, just a few tidbits I know from experience or reading. I'm not up on LLC regulations too much but I've heard it is one of the easiest and best ways to do things as well as saving on double taxation as in corporations.

One thing I'd caution you on (voice of experience) is to having EVERYTHING and every likely situation and how it is to be handled, spelled out in advance and in writing, signed and agreed to by everyone involved.

Here's a small example we had: The building the business was in was owned by one of the partners. He decided to expand his other business and needed the building. When the lease expired, we were faced with finding another location. Since we could not find a suitable one, with proper zoning, we were forced to close the business. Don't let that happen to you.

It's not sufficient to say that 'all will help with...'. There needs to be some definite guidelines (which can be somewhat flexible, of course) of who does what and when otherwise one person is 'too swamped' to help for awhile or one person gets stuck doing all the messy jobs or all the bookkeeping. Discuss who's good at what and always have backup so things don't pile up in case of illness.

Last but not least, have a written agreement about how to handle disagreements. You do understand that, them being a marital partnership first, the odds are you will be out-voted the majority of the time so they can 'keep the peace'. Some things should be subject to informal arbitration, if it's a critial move for the business, rather than simply voted upon in a situation such as yours.

Hope I've been some help to you. Partnerships CAN work but sometimes it's not the easiest way to go. Communication and understanding are essential.

Best of luck to you all.

Sandi Bowman

> Hello. I hope someone can help me with a sensitive business matter. I am
> seriously considering starting an office cleaning business with my sister
> and her husband. At the start we have to deal with the possibly sticky
> matter of how to split the profits. What I would be bringing to the table
> is the capital, and ongoing hands-on involvement. My sister would be
> bringing some experience from when she lived in a different state. At that
> time she had a property management company. Of course, she would also be
> hands-on, as will be her husband. When the business is up and running the
> plan would be for the three of us to be paid wages, based upon how much we
> each actually get directly involved in the cleaning. Later on, as the
> business grew we would hire cleaning help.

> The chief question I would like to throw out to the folks in this forum is
> how should the business profits be split. Should my sister and her husband
> be treated as one half of the partnership, with me as the other, having
> the profits being split 50/50? Or is it more equitable to spilt the
> profits three ways?

> Another question concerns the legal form. Would forming an LLC be best? In
> her previous business my sister said she enjoyed tax advantages because
> she, as the principle owner, is a woman. I told her I didn't think that
> arrangement would work here, since I would be an equal owner and a man.