Profit-sharing in a partnership, the proper way

[turbobird14]

Hey guys, little background on me....

Started a business back in 2008 and have grown and expanded to a point where I needed to bring on a partner on the investment and structure side. I have the industry pretty well dialed in and have done the ground work to get myself to the point where i am at currently, but in order to move forward I needed someone who had the capital and the structure to take care of that aspect while I can focus on growth. We agreed for a certain dollar amount that he would purchase 51% of the company and structure it under a totally different entity and we would split profits 51/49(theres alot of good and thoroughly thought out reason behind this). My question is, at what point do you start dispersing profits? I do collect a salary...and he is merely profit %....but his duty since he owns the company now is to reinvest profits to benefit the company as needed, so does this effect the total payout on both ends or just his percentage? What im also trying to ask is since technically I dont "own" the company anymore, and am paid salary plus 49% profits.... how do we know for certain what dollar amount should be dispersed? If he wants to reinvest some of the profits into new equipment or marketing or whatever he chooses.... does that amount that is being reinvested come off of my share of the profits as well? I guess I just need a better explanation of the proper way to go about profit sharing in my situation. Any input on this would help to clear up any grey areas I might still have. Thanks in advance!

[vangogh]

Honestly if he owns 51% of the company it's entirely up to him at this point. Anything the company invests in is going to be some kind of expense for the company so profits will be what's left after the reinvestment. In theory he could keep reinvesting in the company and have it show no profits. Of course if he did that he wouldn't take home any money. It's possible he could do that for a few months or more if he doesn't need the money, but at some point I assume he'd like to bring some money too.

It's probably something you should both talk about. Technically he doesn't have to listen to you, but that would make for a difficult working relationship.

[jen 1628]

Hi can anyone help ??
My ex started a company with myself and his secretary.He had a 80% share his secretary and myself 10% each.They both put £1,000 each into the company which was quickly paid back to them.The first couple of years there wasnt enough money to get paid the profits so my ex and myself left ours in the company and his secretary had every Friday off with pay.Then he walked out and everything changed.My ex refused to give me the accounts to the company told me nothing that was going on in the buisness and told me there was no profit sharing to give and i wasnt intitled to see them as in the partnership agreement said he had the final say.
I have managed to get the accounts from the accountant and have found last year his secretary with 10% recieved £11,700.I asked my ex about this again he told me i am not intitled to anything and would shut the company down and would see me in court.
I am a single parent with very little money and no idea where i stand

[Freelancier]

Jen, as a shareholder, you're likely not going to be able to do much about it.

As a wife (you're not an ex until there's a decree), you're usually entitled to half of the assets and child support (if the child is his). So... time to go see an attorney to get some better advice than what you'll get in a free forum. Doesn't matter if you have "very little money", either chasing this is worth it or it's not.

[jen 1628]

Hi Freelancier,thank you for replying as a couple i know i am intitled to very little as we were not married.But i am also a partner in the company not just a share holder,i just wanted to see if anyone had any advice to give before i went to the solicitor.

[Freelancier]

Unless there's some way you can assert spousal rights, your ownership share of the LLC is the extent of your "partnership". Doesn't matter if he called you a "partner" or your role in the company's operations was that of someone with a lot of power over the company. It means you are a 10% owner and he controls most of the cards for the LLC. On the other hand, the LLC is not him, so he needs to act on behalf of all owners, not just himself. That's where the lawyer might help you if he's not doing that to protect your interest -- and the interest of all shareholders -- in the company.

[Paul]

Honestly if he owns 51% of the company it's entirely up to him at this point. Anything the company invests in is going to be some kind of expense for the company so profits will be what's left after the reinvestment. In theory he could keep reinvesting in the company and have it show no profits. Of course if he did that he wouldn't take home any money. It's possible he could do that for a few months or more if he doesn't need the money, but at some point I assume he'd like to bring some money too.

It's probably something you should both talk about. Technically he doesn't have to listen to you, but that would make for a difficult working relationship.

Following up on Vangough's statements, owning 51% is as good as owning 99% as far as control is concerned unless there is some extra form of agreement that requires your approval or gives you veto power. As Vangough said profits can be manipulated so that you never see any. You may consider a different and separate compensation deal that is based on sales or top line revenue. You sell it and you get a commission.
You also need a non-dilute agreement or clause. With his control he can dilute you down and almost out by bringing in more shareholders. At least have veto power on bringing in new shareholders.

[jen 1628]

Thanks he has taken his share of the profits, his secretary also recieved her 10% share.Im not intitled to my share as we are no longer a couple.