Legal Question in Business Law in Texas

Partnership Financial Arrangement

I have a graphic design business I formed with a partner in 2005. When we started, we both had full time jobs and worked the business part-time. It has grown tremendously and is doing really well. She was able to quit her full-time job and work our business full-time the beginning of 2006. Because of my other financial obligations, I am still part-time for now. We are trying to determine a fair payment structure. Since we are partners, should everything be 50-50 or should I be paid half what she is paid because I am part-time? We haven't been able to come up with something that seems fair and I need advice as to what is best practices. We'd like to draft a contract (since we didn't do that in the beginning) to cover us since the business is taking off. I should note that I designed the logo, website and much of the creative collateral for the business. And I was instrumental getting the business up and running. But she is putting in a lot more hours at this point. And I just want to be fair to both of us. Please help.


Asked on 12/31/06, 12:26 pm

2 Answers from Attorneys
Cheryl Mullin Cheryl Mullin & Associates, PC

Re: Partnership Financial Arrangement

The answer depends on whether you've incorporated the business. If the business is a corporation, then what you're describing is a shareholders agreement between the parties. If its a limited liability company, then compensation provisions would be in an operating agreement. Either way, it is typical for the owners of business to be compensated for the services that they actually perform for the business (in addition to splitting profits at the end of the day). In your situation, you may want to determine what a reasonable rate of pay would be if you had to hire someone to provide the services (whether it's hourly on on a project basis). This amount would be paid to the person performing the work in the form of a salary or guaranteed payment(and you would have to check with your accountant on whether you need to withhold and pay payroll taxes). The rest of the income would stay in the company to cover general operating expenses. At the end of the year (or more frequently, if the two of you decide), you and your partner would determine whether there is enough cash to make a profit distribution.

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Answered on 1/01/07, 8:38 pm
Peter Bradie Bradie, Bradie & Bradie

Re: Partnership Financial Arrangement

There should be a written partnership agreement covering the contingencies you've mentioned. This isn't a legal question; it's what is fair, equitable, and agreed-to between both parties.

If there's no agreement, the law would divide profit and loss 50/50. That may break up the partnership.

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Answered on 12/31/06, 6:15 pm


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