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Damien Bosco
Damien Bosco, Attorney
Category: Business Law
Satisfied Customers: 2754
Experience:  Helping you with your legal questions.
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I have a question about business partnership

Customer Question

i have a question about business partnership
Submitted: 1 month ago.
Category: Business Law
Expert:  Richard replied 1 month ago.

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!

Expert:  Richard replied 1 month ago.

Good evening. What's your question?

Customer: replied 1 month 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.
Expert:  Richard replied 1 month 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.

Expert:  Damien Bosco replied 1 month ago.

Do you have a written partnership agreement now?

Customer: replied 1 month ago.
I do have Operating Agreement.
Expert:  Damien Bosco replied 1 month ago.

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

Customer: replied 1 month ago.
that is correct.
Expert:  Damien Bosco replied 1 month 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).

Customer: replied 1 month 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.
Expert:  Damien Bosco replied 1 month 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.

Expert:  Damien Bosco replied 1 month 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.