Reference no: EM13764366
Two partners have started up a software business, Partner A and Partner B. The business is yet to pull in any revenue because there have been substantial problems with the product. The business is at a point now where in 6 months' time the product should be ready to pull in revenue.
Partner A has been out of work for the full 2 years forgoing any wages he would usually receive. His usual income would probably be at about 150k a year. Partner A has contributed 15k to the overall project in the meantime in actual funds.
Partner B runs his own business and has been funding the business venture and has put in close to 110k so far over the 2 year period. Partner B also puts in time here and there however not compared to the effort that Partner A has put in and not of the value that Partner A has put in.
Partner B believes he should be paid his money back because that was actual funds that were put into the business. Partner A believes he has put sufficient sweat equity into the business and is only asking for a 50/50 split as the company makes money.
At the moment, there are no forgone wages on the books for any of the time that both Partners have spent on the business. Partner A will be seeking employment elsewhere also to generate an income in the meantime before product launch.
Once the business starts to make money, how should the split between partners work?
Should Partner A push to have the paper loss put on the books for his upcoming employment? If so, how can that benefit him? How will this affect the valuation of the business?
How should the sweat equity of Partner A be calculated?
Should it be based on forgone wages? Should it be higher/lower?
What are any issues that may arise from such an agreement and how should such a dispute be handled legally?
The preference here is of course to preserve the working relationship but to also be fair in the outcome.
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