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Outlining payment options for business partners

On Behalf of | Feb 28, 2024 | Business Formation & Planning

When two people are working together as business partners, it’s important for them to consider potential financial issues up front. This is why they may want to draft a partnership agreement, giving them the ability to define some of these payment options so that there is no confusion over what should be done with the business’s money.

In many cases, business partners will take distributions from the profits that the company makes. This is especially true with a small business that is just getting started. If the company makes $10,000 one month, the business partners may each take $4,000 and invest the other $2,000 back into the business to help it grow. This is just one example, of course, and the numbers are going to be very different from one business to the next.

Can you set up other options?

Yes, you can set up other payment options if you’d like. For instance, some business partners determine that they’re going to take an hourly wage and they keep track of how much time they put in each week. Additionally, some partners may decide on a set salary, rather than taking a distribution of the earnings. If the business is stable and consistently earning plenty of money to pay those salaries, this makes it easier than having to do the math every month.

While all of these different options are technically possible, the key is to ensure that both partners understand exactly how they are going to be paid and what they should expect. That’s why drafting the partnership agreement at the beginning is so critical. Disputes over payment could derail your future plans for the business, so be sure you know about all of your legal options in advance.

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