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I have a question about business partnership

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i have a question about business partnership
Submitted: 9 months ago.Category: Business Law
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9/6/2017
Business Lawyer: Richard, Attorney replied 9 months ago
Richard
Richard, Attorney
Category: Business Law
Satisfied Customers: 56,889
Experience: 32 years of experience practicing law and a businessman.
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Hi! My name is Richard & I will be helping you today! It will take me a few minutes to type a response to your question. Thanks for your patience!

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Business Lawyer: Richard, Attorney replied 9 months ago

Good evening. What's your question?

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Customer reply replied 9 months ago
I started a software services business over 10 years ago. I had a good client (and a friend) who referred me a few projects here and there and continued to do so over several years. Due to our good service and retention, we have kept clients for many many years in the past 10 years. What we did over the years as his referral business grew, we started paying him 15% referral fee. At the same time he also mentored the business. I owned the business 100%. Around 3 years ago, that friend/client asked to be included as a business partner at 33%. He said his contribution is sweat equity and that he is contributed in form of referrals and mentoring. I have trusted him and accepted his partnership without negotiation. He is a seasoned executive and i see his value. We are still a small business. He suggested a 6k management fee besides the yearly distribution. Since i was 100% owner before, i never drew any management fee. However, i started drawing 8k for myself considering the cash flow and we take 33/67 distribution at the end of the year. This is my fulltime business, however, he is involved in other businesses as well.I definitely see his value and contribution. However, i do not know if the partnership structure we have today is correct as i at the time of forming a partnership, i did not have enough understanding of the partnership structure and also i would have asked him for advice but he was a party in this situation and i trusted him. If i had an option, i would have negotiated the percentage. Secondly, the management fee we draw, i do not know if there is a formula or standard. For example, with his 6k and my 8k, i do not know if after 33/67 distribution, this is a balanced partnership. I trust him as a partner and i know he is very committed, but i know there is definitely business interest of his own as well. I just want to share this with an expert and get an opinion. And if i feel this is slightly unbalanced, i need to someone tell me if i am right or wrong. Also what are my rights as majority partner.
Business Lawyer: Richard, Attorney replied 9 months ago

Thanks for responding. I don't really have enough facts to provide a complete and accurate assessment. Therefore, I am going to opt out to open your question up to all experts so another expert can hopefully timely provide you the information you seek. Please do not respond to this post as it will only slow the process of such an expert picking up your question. Take care.

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Business Lawyer: DamienJD, Attorney replied 9 months ago
DamienJD
DamienJD, Attorney
Category: Business Law
Satisfied Customers: 4,866
Experience: Attorney. Well versed, understanding, friendly
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Do you have a written partnership agreement now?

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Customer reply replied 9 months ago
Business Lawyer: DamienJD, Attorney replied 9 months ago

If you are referring to an operating agreement, that implies this is a limited liability corporation. Is that correct?

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Customer reply replied 9 months ago
that is correct.
Business Lawyer: DamienJD, Attorney replied 9 months ago

Now without going into details or specifics, it sounds like you want to change the terms of the operating agreement. Have you discussed this with the other member(s).

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Customer reply replied 9 months ago
Well... not at this point as i don't want to propose this big change. However, can i decide to take higher management fee i decide? For example, current management fee is lower in a sense it lowers my % of $$ out of the company. Since i am majority owner, it would be my decision to change this? To be fair, i would think the management fee should be representation of the ownership %. For the last three years, i have taken lower % of management fee hence in numbers bringing down my personal dollar gain from the company to 60%. I just want to do what is justified. Also if i decided to take over more of company ownership, will i have to pay? Since he did not provide any dollar contribution. I know we are still good friends but i cannot discuss these matters with him and want to get an outside opinion.
Business Lawyer: DamienJD, Attorney replied 9 months ago

You want to take a higher management fee. Is that set forth in the operating agreement now? You as the majority owner could probably change this but if the other person disagrees, then that could cause some strife. If you want to have more of a majority ownership, the other member would have to agree and there could be a payment to that effect. If you put in the money and he did not, you would have in the operating agreement that you would be paid back your money before other distributions. We can discuss more if you want to do so.

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Business Lawyer: DamienJD, Attorney replied 9 months ago

Hello: I am following up to see if you still need further help. If so, please let me know. If you are satisfied with your answer, please provide a positive rating between 3 and 5 stars so you can pay me for the service I provided to you. Best regards.

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