How to set up partnership splits

Question

How do you decide commission splits with partners if everyone is putting in different amounts and/or bringing something else to the table?

Kris L. · Answer

Don’t forget to also have an exit strategy ready and written out, in case the partnership isn’t working out and soneone needs to move on.

Jim Froehlich · Answer

@Jared Gore, the answers to this question could be limitless, it is really up to the partners to decide what is fair. I would recommend making a list of all the aspects important to the acquisition of the property and the management of the property.  Things like: Who is finding the property? Who is doing due diligence/underwriting? Who is putting up money? How is the asset being managed? How big is the property - residential or commercial? What type of financing is being used, if any? Is it a recourse or non-recourse loan? (if any member owns more than 20%, they will have to likely be a guarantor on any loans tied to asset), Will it be held in a member-managed or manager-managed LLC?

I recommend making it as simple as possible, but with an operating agreement that is clear so everyone knows who has what responsibility and when and how funds will be dispersed along the way, bills will be paid, and exit strategies and rules.  Sometimes partners view funds put in my members as loans and those get paid back in addition to splits, so if partners A & B put up money, but partner C did not, then A & B get paid back with interest over time alongside a 3-way split of profits. But partner C might be the property manager and they might get 5-10% of the monthly rental to do that, in addition to their 1/3 split, etc. and so on.  You can split it up any way you want, just put it in the Operating Agreement (even if family/friends), so nobody forgets!

There are many postings if you keep searching with more specific questions.  Good Luck!