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Old 14th July 2011, 07:28 AM   #1
kwondo1967
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Default Business Partner Question

My business partner and I have started an oilfield related business at the beginning of this year and although it has taken off very quickly we are having some growing pains. We seem to be at an impasse on this issue.

We agreed from the very start to keep the incomes from our jobs separate from the business and develop the business as a 60/40 split. He would be the majority owner. Things were fine with this relationship until very recently when he felt the need to quit his job and grow and work the business full time. I don't think this is the time for either of us to make a change like that.

Here is the problem. He believes that I should "pay" him because he will be working the business full time now. I feel that he made the choice of quitting his job and it is his responsibility to now live within the projected profit that his 60% would bring in.

I have grown and worked the business to a larger extent then he has while still employed full time. This is why I feel that his move into this new role was totally unnecessary.

I want to be fair but I don't believe that I should supplement his income because he decided to quit his job and take on this new position. I see the value of working the business full time but I don't think either one of us needed to do it at this point.

Any comments or suggestions are greatly appreciated.

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Old 16th July 2011, 03:36 PM   #2
Trevor_UAS
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Default

Quote:
Originally Posted by kwondo1967 View Post
My business partner and I have started an oilfield related business at the beginning of this year and although it has taken off very quickly we are having some growing pains. We seem to be at an impasse on this issue.

We agreed from the very start to keep the incomes from our jobs separate from the business and develop the business as a 60/40 split. He would be the majority owner. Things were fine with this relationship until very recently when he felt the need to quit his job and grow and work the business full time. I don't think this is the time for either of us to make a change like that.

Here is the problem. He believes that I should "pay" him because he will be working the business full time now. I feel that he made the choice of quitting his job and it is his responsibility to now live within the projected profit that his 60% would bring in.

I have grown and worked the business to a larger extent then he has while still employed full time. This is why I feel that his move into this new role was totally unnecessary.

I want to be fair but I don't believe that I should supplement his income because he decided to quit his job and take on this new position. I see the value of working the business full time but I don't think either one of us needed to do it at this point.

Any comments or suggestions are greatly appreciated.


is the business a LLC, S corp or general partnership?
What is currently being done with the revenue that is generated by the business?

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Old 16th July 2011, 06:38 PM   #3
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I really feel for you on this one, because I too have started partnerships without a thorough agreement done by a lawyer in advance. That agreement is what would have spelled out your relationship in excruciating detail so that this type of experience could be avoided. (I'm assuming that this was not done...)

I have seen partnership agreements of all kinds and they really do vary. Some allow the 60/40 split of profit ONLY, some address how much each will be paid if both come on salary paid by the Corp.

To be fair (in your situation), I would say to him that if one of the partners is going to receive a salary, both should...so this may be to your advantage monetarily. If you feel that you are working 8 hours a day for the business already, then you should be entitled to the same salary that he is getting. Unfortunately for you, he has the deciding vote on anything with the business having 60% of the shares (is this a Corp??) but it can't hurt to appeal to his ethical side. When this is settled, I would suggest that you go to a lawyer and have a partnership agreement drawn up.

Hope this helps...

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Old 16th July 2011, 09:54 PM   #4
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Here's how I would approach it--

1. While you were both working part-time on the business, I imagine income to to business just about covered costs, and neither of you were drawing an income from it. Any excess funds are being accumulated in the company bank account.

2. It now seems business has grown sufficiently to warrant one partner becoming a full-time employee. That partner/employee should be paid a salary from the business income.

3. The next stage of expansion will allow the other partner to become a full-time employee and also be paid a salary from the business income.

4. The objective is for both of you to become full-time employees of the business as quickly as possible, because, until you do, growth will be slower than if you both were full-time.

5. Once you are both full-time, the next phase will be to increase the number of contracts so you can employ people to do that work.

6. Neither you nor your partner should be doing this work. The job of one is to get new contracts, the job of the other is to manage the employees. The employees will do the work.

It looks to me that you are on the right footing - well done! And good luck for the future!

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Old 18th July 2011, 10:51 PM   #5
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The info here is good, but your immediate issue is the partner and pay. If I read this properly, he owns 60% of the shares and has the deciding vote(s)... but that's for the company. Not for your money.

I think the real problem is that it sounds like he made the decision on his own, without consulting you. If there was a discussion in the first place, the pay issue would have come up (or should have).

I agree with putting in more time.. I strongly disagree with having to dig into your pocket to pay him. If I were told that, I would suggest that any 'monetary input' would change the ownership. In other words... put in $5,000 (just a figure I pulled out of the air) and buy 10% of the shares, leaving it a 50-50 split.

Hope this helps! Good luck!

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Old 20th July 2011, 09:40 PM   #6
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Partnerships can bring a number of benefits including the sharing of financial risks as well as complementary competencies to grow and expand the company. However, any partnership should start off with a partnership agreement before commencing business. Since, you all didnít start off with an agreement; I highly recommend you get an attorney to help you draw one up. Concerning your question about your partnerís salary, I suggest you consider some form of commission on the revenue he generates above and beyond what you all normally generated before he went full time.
Hope this helps and good luck!

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Old 22nd July 2011, 06:19 AM   #7
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His decision to rearrange his life so that he can spend more time on this venture was his decisions. He knew the consequences. It sounds to me like he is second guessing his decision and want's you to make up for his bad decision.

I think you are 100% justified in not wanting to change the financial terms. That was his decision and he should live with the consequences of them.

It sounds like you two need a serious meeting with an objective 3rd party present (a.k.a. attorney) so that you can work out the details for future plans and commit them to paper so that there is proof and clarity of your new agreement. You should do this regardless of whether or not you have an existing partnership agreement.

Keep in mind that he needs to know exactly how you feel about this if your partnership is to survive long term. Otherwise the remorse will build up to a head.

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Old 22nd July 2011, 11:37 AM   #8
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While I don't have answer for this specific issue I highly recommend you put together a formal partnership agreement if you are able to resolve this issue and continue to have the partnership. Make sure it is a legal, binding document created by an attorney. We have seen this type of issues time and again and the result is typically not pleasant for anyone.

This, of course, assumes that you don't have any type of agreement in place that describes how you would resolve this situation when one partner wants to change the structure or exit.

Good luck.

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