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Partnership profit distriputon agreement, need help with ideas

markfmarkf subscriber Posts: 1
edited December 2007 in Business Planning
Hi Everyone, I am going into a 50/50 partnership with one other person. We want to make things equitable based upon percentage we bring to the bottom line.  We are trying to spell out compensation issues such as; if someone brings a new client then that person should be compensated for doing so. If one partner is doing most of the paperwork and backend operations, obviously they are not able to find as many new clients. Thus looses out on that part of the compensation. We visited the local SCORE office and our counselor recommends we split the "pie" into four pieces, distributed in the order: 1. Expenses = come off the top for, well, expenses 2. Commissions = based upon output and contribution to bottom line (new clients etc.) 3. Salary = based upon an agreed hourly rate to be paid for the amount of time spent on company tasks. 4. Profit = 50/50 - split of whats left.  Does anyone else do something like this? It seems awfully accounting intensive. Does anyone have an example of an agreement I can use as a template or any more simple arrangements? Thanks a bunch in advance to everyone. Mark


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    StartupLawGuyStartupLawGuy subscriber Posts: 2
    It`s difficult to have a "simple" agreement that actually represents the true agreement of all the parties in a business where, like yours, compensation is driven not only by salary but also by client development.  I would say, though, that often a simple letter agreement among the partners can be used.  Certainly, a formal partnership agreement is the best way to go, but it`s always better to get something in writing than getting overwhelmed and having nothing.
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    robertjrobertj subscriber Posts: 0 Member
    Based upon my experience, you might want to separate the "compensation" question from the ownership issue. (which is somewhat what the SCORE person suggested.)
    If you are equal partners in the ownership, you will have an "equal" say in running the company. Any profits (as well as losses) that are distributed should be distributed equally. Company expenses should be paid from the revenue or available capital.
    Keep the compensation "separate" from the ownership. If you get a "commission" for bringing in new customers, how will that affect the focus of your attention? Is that what you want?
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