The Entrepreneur Forum | Financial Freedom | Starting a Business | Motivation | Money | Success

Welcome to the only entrepreneur forum dedicated to building life-changing wealth.

Build a Fastlane business. Earn real financial freedom. Join free.

Join over 80,000 entrepreneurs who have rejected the paradigm of mediocrity and said "NO!" to underpaid jobs, ascetic frugality, and suffocating savings rituals— learn how to build a Fastlane business that pays both freedom and lifestyle affluence.

Free registration at the forum removes this block.

Partner Compensation, How Much?

xmartel

Bronze Contributor
Read Fastlane!
Speedway Pass
User Power
Value/Post Ratio
261%
Jul 22, 2008
126
329
Canada, eh!
Hey everyone, looking for a little insight into compensation structure for a prospective venture.

My current business is going well (hoping to make an "I made it", AMA thread soon) and I've got some money I want to plow into a lucrative opportunity that has arisen.

The long and short is that my partner has the extensive industry knowledge and experience, and I have the money and business experience.

I would be funding 100% of the startup costs, about 200K. They would be running the day to day and be actively working in the business performing the tasks this business does. They may be the only employee at the start, they may have one assistant. Eventually we'd grow and they'd step back to doing just management and strategy.

Our split would be 50/50.

My question is, does my partners salary come out of profits, which we would split 50/50? In other words, they don't get a salary. Just their share of profits. (as anyone knows starting a business, your salary comes out of profits, no profits, no salary)

OR do they get a base salary, and then after that cost, split the profits?

If they're specifically getting paid for their time, what is fair? An entry level wage based upon the basic tasks done to earn money. Or a higher wage to compensate them for the management roles they will play?

And if they're getting a salary for their time, should I get a salary too for the time I put in? (which will be quite a bit less than them, I'll be more in an advisor, strategic vision, board member etc. type role)

The businesses I've run up to this point have been just me, or my wife and I. So this type of partner situation is new to me.

Anyone have experience or knowledge in what is typically done in situations like this?

Thanks in advance.
 
Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

fhs8

Bronze Contributor
Speedway Pass
User Power
Value/Post Ratio
114%
Jan 22, 2016
271
308
I would be funding 100% of the startup costs, about 200K. They would be running the day to day and be actively working in the business performing the tasks this business does. They may be the only employee at the start, they may have one assistant. Eventually we'd grow and they'd step back to doing just management and strategy.

Our split would be 50/50.

My question is, does my partners salary come out of profits, which we would split 50/50? In other words, they don't get a salary. Just their share of profits. (as anyone knows starting a business, your salary comes out of profits, no profits, no salary)

OR do they get a base salary, and then after that cost, split the profits?

If they work in the company they get compensation for working so that can either be a salary or hourly wage. Then the owners of the company can optionally get a disbursement or dividend basically for being a shareholder. Disbursements need to be given fairly so if one person gets a disbursement everyone else needs to get one as well based on how much they own the company.

If they're specifically getting paid for their time, what is fair? An entry level wage based upon the basic tasks done to earn money. Or a higher wage to compensate them for the management roles they will play?

It all depends. If the company might need cash in the future it's probably a good idea to not pay that much in salary.

And if they're getting a salary for their time, should I get a salary too for the time I put in? (which will be quite a bit less than them, I'll be more in an advisor, strategic vision, board member etc. type role)

Sure. Those who work in the company get a salary.

Also why in the world did you give away 50% of your company to someone when you're funding everything? Couldn't you have just hired an employee or educate yourself? IMHO it's usually a bad idea to get a partner. If your partner refuses to work then you're screwed. You would have no recourse because your partner still owns 50% of the company. You're basically relying on your partner's generosity.
 

xmartel

Bronze Contributor
Read Fastlane!
Speedway Pass
User Power
Value/Post Ratio
261%
Jul 22, 2008
126
329
Canada, eh!
Thanks for your reply.

I'm not a newb when it comes to business. I have good reasons for giving away 50%. All I did was provide the most basic of details about the business. The investment strategy, market, etc. wasn't part of my question. If I were to take the time to explain the entire business and partnership, you'd see why we have that split. But it's not relevant to my question.

But again, thank-you for your other insights into my question. It is helpful.
 

Tim Allen Jr.

Bronze Contributor
Speedway Pass
User Power
Value/Post Ratio
186%
Jul 6, 2017
83
154
virginia
Depends. If there are questions about it, I would just discuss it with your partner as to what their expectations are.

Even equity typically means profit split after expenses, but depending on the living situation of your partner, he may need a small salary to keep afloat. If they need a salary, depending on the size, you could factor that into your equity. Also, just need to think about if company does not generate profit, does that impact his salary, and if you are okay with that.

Each case is different, but probably best to discuss it with him/her immediately.
 
Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

xmartel

Bronze Contributor
Read Fastlane!
Speedway Pass
User Power
Value/Post Ratio
261%
Jul 22, 2008
126
329
Canada, eh!
Yeah, we're talking with each other. I'm sure we'll come to an equitable agreement. But I know there's a lot of people here a lot smarter than me and have probably experienced how these situations work.

That's one of the issues you raise. They would need something basic to sustain their life. But if we don't make money, do they keep getting a wage to help them live?

What I'm leaning towards right now, is they get a basic living wage, maybe something similar to what an employee would make doing the basic work of the company, work that they will be performing. And they get nothing above that, and we just split the profits at that point. I wouldn't take any wage. I'm more an investor and just advising on my investment. But if the company doesn't make money, they don't even get their basic wage.

But we'll keep brainstorming.
 

Post New Topic

Please SEARCH before posting.
Please select the BEST category.

Post new topic

Guest post submissions offered HERE.

Latest Posts

New Topics

Fastlane Insiders

View the forum AD FREE.
Private, unindexed content
Detailed process/execution threads
Ideas needing execution, more!

Join Fastlane Insiders.

Top