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I am in a business partnership. We started the business

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Hello. I am in a...
Hello. I am in a business partnership. We started the business about 1 year ago and have worked relatively equal hours. Maybe I've worked a little bit more but nothing crazy (maybe 5-10 hours more per week). Now, I'm no longer working at my company and I can (and have) dedicate 75-80 hours a week to the business, whereas my business partner is probably spending closer to 45-50 hours. Additionally, he has a family, so there are more instances where he is offline due to family events. This has been the status quo for about a month now.He might take an additional day off, so the hours will get closer but it will be a substantial time differential (in my opinion, in the 50% range). The situation might also potentially change if we are able to make the business more successful in the next few months. Then he will also be able to leave his job.This has been a hard issue to address for us. I suggested that I get paid (a reasonable amount, less than what I am foregoing by not working a regular job) an IOU salary from the business for the additional hours worked. I thought this would be better than equity since we could flip it if he is ever working more hours than me for periods of time. In this case, we don't know how long this situation will last, but it could be a number of months. His viewpoint is that we both want the business to do well and that we both give our max (which is true) He also feels that by giving me a salary, that he is losing money everyday, and that their is no way to quantify the benefit of my additional hours. My viewpoint is that I could take these hours and start a business on my own, or go back to work and earn a solid salary, and that it isn't equitable for me to get only 50% of our output, if I'm putting in two-thirds of the work.We discussed our thoughts but haven't been able to come to an agreement on how to handle this. Trying to get some ideas/recommendation on how these types of situations are typically handled. Thanks!!
Submitted: 7 months ago.Category: Legal
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Answered in 3 hours by:
10/4/2017
Lawyer: Law Educator, Esq., Attorney replied 7 months ago
Law Educator, Esq.
Category: Legal
Satisfied Customers: 124,398
Experience: JA Mentor -Attorney Labor/employment, corporate, sports law, admiralty/maritime and civil rights law
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Lawyer: Law Educator, Esq., Attorney replied 7 months ago

This is the problem with owning your own business, with a partner or by yourself. The issue is that usually one person has to invest a significant amount of time into the business to make it work. If you are putting in double the time he is putting into the business, but he is still putting about 40 hours a week like you said, this becomes even more difficult to determine for each partner. The way most partners will decide this is paying the partner who works more time a hourly wage for all the time they work beyond what the other partner is working, this way both share equally in the profits up to 40 hours a week and then the partner working more time gets an hourly rate for their time spent working above and beyond.

The pay can be monetary or it could be in form of a percentage of ownership of the business, such as an additional 3-5% of the business ownership (depending on business value of course).

Please do not forget to leave positive feedback by clicking on the 5 stars at the top of your page, as the experts are not employees of the site and get no credit for spending time with customers unless they leave positive feedback. Thank you.

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Customer reply replied 7 months ago
Thanks. Does it matter if we are in a S Corp? Does that change anything? Also, if we decided to go the equity route, how would we structure that. It's hard to come up with a number based on work input. We've been doing this for a year, this situation might be in place for six months and it might fluctuate week to week in terms of hours. Do you know of any additional resources for how to structure this decision? What an acceptable salary for the person working more? The more details the better :) Thanks.
Lawyer: Law Educator, Esq., Attorney replied 7 months ago

Thank you for your reply.

No, it does not matter if you are an S corp in this instance. As an S-corp you could agree to take more shares in exchange for your extra work, even if they are equity shares without additional voting power. As far as an acceptable salary, you need to research the specific work you are doing in the industry your company is in to determine what people who do that job are making on sites like salary.com.

You could take shares of the company or additional pay/hourly wages as I mentioned above.

Please do not forget to leave positive feedback by clicking on the 5 stars at the top of your page, as the experts are not employees of the site and get no credit for spending time with customers unless they leave positive feedback. Thank you.

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