determining a new partnership agreement, perecentages and salary

[minadimetry]

i am looking to enter into a new partnership with a friend that has currently owned his pizzaria for 4 years, i have some experience in the food business but not in the pizza business. i have found a great location that i initially wanted to do a franchise in but was not able to due to other tenants conflict of interest so i turned to my friend to see if he wanted to join me in the opportunity. we are going in with 50% each financially however i could put more. he will only be helping me run the resturant in the begining but then it will all be me. my questions are:
1- what should the percentage be ?
2- if we do 50/50 should i take a salary or get paid hourly for managing the business ?
3- should i have more decsion making authority ?
4- what should the operating agreement include ?

[vangogh]

Welcome to the forum Mina. Always a tough question and ultimately one I think only you and your partner can really answer. There's no specific set of rules to follow when determining percentages and salary. In the end I think you both have to agree to something you both find fair. Having said that here are some thoughts.

Assuming you both do put in 50% each financially neither one of you would likely merit more or less of the business based on financial contribution alone. Obviously that changes if you end up putting more in.

It sounds like you'll be doing more of the work long term so you would naturally deserve a larger part of the business for that. In fact it sounds mainly like your friend is going to invest something in the business and help you get started and then it's really going to be you running things. Is that right? If that's the case and since your investment will be the same as your friends it does make sense for you to get the larger share of the business.

Like I said above there aren't any hard and fast rules, but I think a lot of people see the financial contribution and the running the business contribution as equal contributors. In that case you might start discussions with your friend in a place where you're getting 75% of the business and your partner gets 25%. If your partner has no interest running things beyond the initial help that might be agreeable.

You could give your partner a greater stake in the company for the early help or you could give your partner a much larger stake in the company early on while some of the % of ownership transfers back to you after a 6 months, a year, 2 years.

Another thought is having this business be yours alone and treat your friend's investment as something more like a loan.

Again it will ultimately come down to what you and your partner think fair for each of you. From what you've described it does sound like you'll be contributing much more to this business over time so I would want a significantly larger share of the business long term.

Hope that helps.

[minadimetry]

thanks a lot for your input vangogh, if we go with the 75/25 split, would i still be getting the salary ? can the salary be based on a perectange of sales ?

[vangogh]

That's really up to you and how you decide to set things up. As long as you and your partner agree to you taking a salary I don't see why you couldn't. I would think the salary could be based on a % of sales.

It's really about you and your partner agreeing to something you both think fair based on what each of you is contributing to the business now and in the future.

[LFinkle]

First you shoudl consult an attorney on this matter. As to the operating agreement again you want to consult an attorney but here are a few ideas. First just because you are both putting in 50% of the money does not mean you need to share 50% of the profits or it relates to compensation. It depends on a variety of factors such as who is going to do the work (or most of it), will the ongoing finacial responsibility be shared at 50/50 or something else? Who will make decisions on expenses, marketing and other factors related to driving the business? Partnerships are sticky. You should make sure you and your partner expectations are the same before you begin. If you want to read about dealing with partnership issues before they become issues you can read my book "Finding the Fork In the Road" which you can find on Amazon and all major retailers