Discussion:Partnerships agreements/ earnings distributions

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Discussion Forum Index --> Tax Questions --> Partnerships agreements/ earnings distributions


Www.cpa1.biz (talk|edits) said:

7 January 2007
Almanacers,

I am trying to find out the best way to distribute earnigs between partners. It looks like there are two common methods:

1) Profit agreement

2) Capital contributed

I understand the 1st one but the capital contribution is kind of confusing. Because the capital usually changes year to year based on personal invesments, does that mean the percentage of income/expense distribution will change each year as well?

Also, does this like a good method when one partner invests a lot into the company and the other one does not.

I am just trying to get some feedback and on how you usually tell partners to split income.

Thanks,

BJ

JR1 (talk|edits) said:

January 7, 2007
I always use profit agreement, since the capital does change. Waiting for that day when there's an actual partnership agreement (do they even exist?) which would define it based on capital. The issue of one contributing a lot and the other services really only impacts whether the service provider is being given a capital interest, which can be taxable at the point when he's vested.

Chautauqua (talk|edits) said:

7 January 2007
You may need to get an experienced partnership attorney involved. There should be a comprehensive partnership agreement prepared that will address your problem, plus a variety of other partnership issues that you have not mentioned.

Www.cpa1.biz (talk|edits) said:

7 January 2007
Thanks guys....I will see what their budget is and how much it will cost to talk about partnership agreements with an attorney.

Any of you have any estimates on how much an attorney will charge to construct a small agreement..

Thanks,

BJ

JR1 (talk|edits) said:

January 7, 2007
$1000 around the Chicago area I think, give or take a few hundred, depending.

Bottom Line (talk|edits) said:

7 January 2007
I recommend to ALL clients that want to start a business with more than one person, that they get a partnership agreement done by an attorney. Yes they hate to spend the money, but I explain that the attorney will address a lot of issues that they hadn't thought about. IE - what if one partner wants to purchase a Rolls Royce and the other one doesn't - how is the decision made?

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