All's not always fair in a business partnership


In a perfect world, business partners would contribute the same amounts of time and money and receive the same compensation. However, as New Jersey entrepreneurs may know, each partner is unique. Although the rule of fairness must still apply, equality is not always possible in a partnership - nor is it preferred.

Business partners have three key inputs: time, money and effort. One partner may put in more time, while the other puts in more money. Effort is much harder to assess. There are also many outputs, including the most popular one, income. Additionally, there are options such as flexible scheduling, time off, healthcare benefits and expense accounts. Equity is a valuable option to have, but for many businesses, it's just not possible.

The key to a successful partnership is to have a discussion about compensation expectations. One partner may want more income, while the other may wish to have more time off. There is no hard and fast rule for compensation structure, so it's important to find out what motivates each partner so they feel motivated to grow the business further.

For added legal security, all aspects pertaining to the partnership should be outlined in an agreement. It should outline the role in detail and describe what the partner is expected to contribute to the company, whether it be a certain amount of time or money. The compensation structure and partner's rights should also be mentioned. This document will be helpful should a disagreement arise. If a partnership has no agreement, then any issues are settled in accordance with state law.

Source: Forbes, " In Partnership, "Fair" Doesn't Always Mean "Equal"," Amanda Neville, August 2, 2013