4 things you should think about when deciding how partners should be compensated

Decid­ing part­ner com­pen­sa­tion when start­ing up a com­pany is crit­i­cal.  With­out a fair and just writ­ten com­pen­sa­tion  pro­vi­sion in a part­ner­ship agree­ment, the busi­ness can implode.  Here are 4 things you should think about when decid­ing how part­ners should be compensated:

1. When will prof­its be divided? Will it be once a year, at the end of the year or will part­ners be able to draw their prof­its at some ear­lier point?
2. Should a part­ner receive a addi­tional salary? In the case where one per­son may work more hours than the other part­ners, it is advis­able to either pay an addi­tional salary or pro­vide a larger por­tion of the profits.
3. Should prof­its and losses be shared equally?
   
4. Should a cer­tain per­cent­age of the prof­its be re-invested in the com­pany? For exam­ple, it may be impor­tant to retain some of the prof­its to pro­vide a bonus to keep a key employee.

It is vital that you and your part­ners how decide prof­its should be shared as early as pos­si­ble.  A lawyer can help you focus on what is impor­tant and select solu­tions. But ulti­mately, it is up to you to decide how prof­its are allocated.

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