Now a silent partner in the business I started...

[cope1990]

Almost 5 years back I started a company. 2 years back I took on a partner, who is now the other shareholder at 40%, along with myself. I became a silent partner and he took over day to day operations a bit over a year ago. He has invested about 50K in the business along with 6 months working without salary and since then has been taking an annual salary of 60K. I’ve also been taking a distribution of 60K annually, paying down some of the personal debt I took on getting the business going, and help make up for the first few lean years starting the business. The agreement is that I will continue taking a draw until I can replace this income with income from my new business - I hope to do this within the next 12-18 months.

My question is about the fairness of this arrangement for both parties, and especially in what I could do now to avoid road mines in the future…this agreement came about naturally and with little insight from the outside business world. We have nothing firm about an exit plan but have talked of selling the business if it’s the right opportunity down the road. We also agree his salary will greatly increase as the business continues to do better. I’m hoping to gain some insights from someone that has advised on partnerships with good success, so I can help head off any potential issues.

[Gustav-Dam]

i am not sure but i feel that there is something suspicious in this agreement, legal advisers can guide you better

[MyITGuy]

If you take your draw of $60K, is your partner who owns 40% also taking a draw of $40K in addition to his salary of $60K? If not, this would be the proper way to handle this as he is performing his work which he is being compensated for, you can then issue a distribution based on shareholder %.