Making it work—through good times and bad
Continued from page 4
50-50, Not Always Nifty?
Not all partnerships evenly divide owner compensation and profits. Jim Scovell owns 57.5% of Scovell Wolfe because an unsuccessful previous partnership convinced him “that I would never be a minority owner again,” he says. John Wolfe, his partner, says that he supports this “the buck stops here” attitude because Scovell doesn't abuse it.
Mark Olson owns 51% of Legacy Custom Building & Remodeling, Brian Shaurette owns 21.5%, a third partner owns 15.5%, and two others own 6%. Some bought their ownership share; others were issued it in company stock.
Craig Durosko founded Sun Design Remodeling and owns 75% of the company. Bob Gallagher owns 25%.
Terry Streich and Gary Welton each own 50% of Silver Bullet Design & Build, but “we set it up to prevent conflicts over time spent participating in the business,” Streich explains. On a regular basis, each man receives an hourly wage for the time he actually worked in that pay period, plus a fixed payout for being a shareholder in the company. In profitable years, each partner also receives half the company's profits.
The Partnership Agreement
Partnerships are the only business entities that can be formed by oral agreement, and many remodeling partnerships do, in fact, begin with a handshake (see Reader Panel). But at some point, all should be formalized in a clearly written partnership agreement that leaves little room for ambiguity and can prevent minor disputes from erupting into full-blown battles.
Attorneys' fees for drafting partnership agreements typically range from $500 to $2,000.
Some issues to address:
Initial contributions. How much cash, property, and services will (or did) each of you contribute to the partnership?
Management duties. How much time will each of you spend running the business? Who will do what?
Profits, losses, and draws. How will the money be divided and distributed? Will draws be issued on a regular basis or at the end of the year?
Decision-making authority. Establish voting rights for major decisions. Will they require a unanimous vote or a majority? If all partners have equal authority, consider giving a small ownership share to a neutral tie-breaker.
Disputes. If you become deadlocked in a dispute, will you go to court or bring in a mediator or arbitrator?
Buy-sell. How will you handle the departure or death of one partner, or the sale or dissolution of the business?
