Fair Partnerships

When putting together a company, some people might be partners based on their investment, others might be partners based on their sweat equity and others might be partners based on their intellectual property.

One of the keys to having a fair partnership is for each partners contribution to actually be what has been promised. This means if they are supposed to put in $X they actually put in $X and nothing less. If their contribution is going to be sweat equity they put in the effort needed to make this work (and that means true effort and not the absolute minimum effort to give the impression of buy in).

The flip side to a fair partnership is when things start working, people should also be compensated fairly.

Too often the partners who invest money into a company are the last people to ever get money back. The people putting in sweat equity or IP tend to get get compensated with some form of a salary, in addition to their equity, while the people doing the funding just get their equity. In many cases, the only way for the people who provided the funding to get any type of capital back is through some type of an exit (someone else buys all or part of the company).

When the company turns profitable, why shouldn’t the investors share in the profits? While I understand, and agree with wanting to keep some of the money in the company for safety and future growth, there is also a point when distributions should be made, instead of just salaries being paid out. This means if Partner A put money into a company in exchange for 50% of the company, and Partner B puts sweat equity and IP into the company in exchange of the other 50% of the company, when the money starts cash flowing, instead of Partner B getting a nice salary and Partner B waiting for some type of an event to get money, each partner should share in the distributions based on their percentage.

If all partners are treated fairly, everyone wins.

Have a great day!

Lawrence