New Topic
Post Reply
Follow Topic
my partner and I have agreed that she would put up 14k to start and I would put up 6k. She says that because my 6k is a credit card the business shouldnt make the payment because then she is actually paying for it, I should personally pay for it. I dont understand this, shouldnt we both pay ourselves back some money from the business after expenses and then distribute profit?
If she is getting paid back for her $14K - then why should you not also be paid back? It should not matter where the money comes from if the business uses it.
I suggest this. You not only require that you get paid for putting up those funds just like her but that you also get it in writing with signatures from both of you.
Best of luck.
Here is her reasoning;
Her $14,000 is equity in the business. Your $6,000, if the business is making the payments is not equity but debt. If the business is paying the credit card bill, then it's almost like you did not contribute anything except. In reality, you are bearing the risk that the business fails and is unable to repay the loan in which case, the loan becomes your responsibility.
Let me illustrate with an example. Let's say you earn $1,000 monthly, and you have expenses of $200, profits would be $800. If the credit card payments are $100 and the business pays, profits go down to $700.
WHat should happen is you should take your share of the profits, let's say 50% ($400) and pay your credit card debt. That's the only way to be fair to your partner.
Let's put some numbers on it... and $10K each to make the math easy.
So you each put in $10K, and let's say the business makes $30K in the first year. The company pays off the credit card plus some interest, leaving $19,000 for the two of you to split 50/50... or $9,500 each.
So she's put in $10K in cash, and gets $9,500 back.
You've put in $10K, had it paid off, and get $9,500 back.
Do you see why she's perturbed? Your agreement was hopefully a little more comprehensive than "she puts in 70% and you do 30%, and you split profits the same percentages." Are either of you expecting your capital contributions back, or just profits?
I agree with your partner and your accountant would probably do the same.
First, I assume you put your share on a personal credit card in your name only. The business should not write checks to your personal credit card.
For every dollar of profit, your parter gets a repayment of 70% and you get 30%, same as the shares you put in. You use your 30% to pay off your credit card. Check with your accountant to see if the interest is deductible as a business expense.
I would also strongly advise you to sit down with an attorney to draw up a partnership agreement to address these issues. S/he will already have 90% of the standard language and will customize it for your situation. If you and your partner are having this kind of misunderstanding at this early stage, I forsee greater problems down the road - either if you hit it really big or if you each have to come up with more cash to keep it going.
Good luck and again, seek professional advice on this one.
Post Reply
