Yinkatolu:
Profit should be shared based on agreed and documented profit sharing ratio.

And where there's no agreement profit should be shared equally according to Partnership Act 1890

simple...

Fit2Rule:


The business is a partnership and should have an article of association ni matter how small it is. Since it's a business that requires customer sourcing and retention, there should be clearly defined, a provision of reward for customer sourcing. This is because in a case where one of the partners hadn't been a good marketer, the business would have employed marketers to do the job of customer sourcing and pay them.
As to profit sharing, the man who brought in 85% of the capital will definitely get a larger share of the "net" profit. I'm emphasizing the net profit because the second partner should benefit from the "expenses" of the business as he does the job of a marketer even though he's also an investor. It is left for the two owners of the business to sit down and draft a business plan (if they previously have none) and spell out all these things.

Thank you good Sir for your input. it is truly appreciated

sweetmusictv:
I could barely understand the write up. Mod I suggest you use Partner 1 or "1st party" NOT ***partner one***.

Let me use the term boss for partner 1. Forget about idea or anything unless Partner 2 is family member and there is possibly informal consideration to share funds.
Idea is totally a waste without resource to implement it. So I term partner one as the Man employing partner 2 to help invest, manage or administer his funds (Whatever - In Jennifer's voice).

My suggestion, partner 2 should dwell on Salary not percentage unless he is an ingrate. Basically for a business to thrive there should be marketing, and I believe seeing profit after spending (not siphoning) money will impress the investor (Partner1)

In short, For the 1st party to entrust N2million into your nothing but an idea in Nigeria of yesterday, today and tomorrow, There should be respect and nothing like sharing.

Partner 2 is only a member of staff which I may term as Manager or Personal Assistant who need to market his idea to impress his BOSS and at the end of the month he will only collect salary based on 1st party's decision.

If the 1st party thinks his idea is important he should return the N2million and get loan from bank or creditor. Then he will understand what am saying.

Hmmm...fully understood Sir. Thanks for your input.

Preator:
quite straightforward I think. they should agree on a sharing formula though 85:15 should be fair enough. however, the partner contributing his time should be on a salary comparable to that which he will earn were he to be employed to run a similar business where he has no stake. by the way, partners salary will be deducted before the profit is determined and shared.

if there is no agreement and litigation arises, the Partnership Act will most likely prevail. it makes the following provision where there is no deed.

1. Profit and losses are to be shared equally
among the partners.

2. No partner is entitled to a salary.

3. Partners are not entitled to receive interest on
their capital.

4. Interest is not to be charged on partners'
drawings.

5. When a partner advances loan to the firm, he
is entitled to receive interest at six percent per
annum.

This is extremely enlightening, thank you Sir!

chudyboy05:
in partnership account as in this case ,there ought to be a well documented paper stipulating on, on how the profit of the biz should be shared(profit sharing ratio ). Meanwhile, since it wasn't documented, you can use the percentage of the contribution and let the sleeping partner compensate you a little for ur hard work. Though there should have been a percentage on how much to be given to the active partner but all the same ; just take correction in case of next time. Dormant or sleeping partner 60: active partner 50 somehow!

Fortunately, the business is yet to take flight with just this issue remaining.The drafting of the document informed this post of mine. Thanks a lot for your insight.

BioGreen:
the MOU/MOA should have spelt out the profit sharing formula upfront bearing in mind each partner's contribution in terms of finance, time/effort put in running the business & idea.

Finance:

Partner A = 85%
Partner B = 15%


Time:

Partner A = 10% (meetings, signing/processing cheque, etc)
Partner B = 90%


Idea:

Partner A = 30%
Partner B = 70%


Weighting for each aspect:

Finance - 60%
Time - 30%
Idea - 10%

Let Profit = P

Finance = 0.6P
Time = 0.3P
Idea = 0.1P

Assume Profit = 20 Million
Partner A gets = 0.85 x 0.6P + 0.1 x 0.3P + 0.3 x 0.1P = 11.4 million
Partner B gets = 0.15 x 0.6P + 0.9 x 0.3P + 0.7 x 0.1P = 8.6 million

Hence Partner A gets 57% while Partner B gets 43%

Note that the above partners contribution and weighting is debatable & subject to partners mutual agreement/acceptance.

..Call the above formula/approach/model "Onu-Dexter Profit sharing equation" (all right reserve pls; onudexter@gmail.com)

Wow! what can I say! Thanks a lot good Sir for this mathematical breakdown.

mark2sunny:
60%~40% In Favour Of The Investor. Money Is The Life Blood Of Every Business. There Are Great Idears Everywhere Wasting For Lack Of Money To Bring Them To Limelight

A very correct in observation Sir!

Melonny:
There should be an agreed profit sharing ratio that is well documented.. Some facts should be noted anyways. the partner A owns more than half (85%) of the business.. Although he's a dormant partner but he should have more share from the profit or retained earnings.
Partner B is more like an Agent(MD).. the MD should own a share in the business too tho.
The risks will be shared between the partners equally, the rules says-but sudden closing down of the business, partner A will bear more risk(debt).
partner A should receive more profit and that should reflect in a documented agreement.

Sir, talking about risks borne by the financier, will you still hold same view if the asset that the financier invested money on are recyclable by nature, i.e even at close of business he can still sell off the assets to recoup part of gas fund considering depreciation of course and if the assets are invoiced in gas name and not that of partner two or the firm.

Your view in this case would be truly appreciated. To recap, under whose name should equipment purchased by the financier's money for use in the business be invoiced?

sdavirus:
Truth of the matter: Both are important.

Further truth: It's easier for the guy with the money to see what else to put his money in, than to see another that would be willing to invest N2m in something that isn't guaranteed (nothing is) in these times.


Yes, 50-50 should be the benchmark, but
If I was the one doing all the work, I'll suggest 60-40 sharing, in favour of the investor. Which would be reviewed at a stipulated time.

Thank you Sir for your thought on the issue.

CoolAmbience:
As for me, being an entrepreneur myself, I would suggest that the financial partner gets back his investment over an agreeable period, of course this depends on inflows and profitability, and 35% stake through out the life of the business, while the inventor maintains a controlling 65%, as one who birthed the idea.

Some persons may want to ask, why get back his investment without interest on it? It is simple. That's the sacrifice he's required to make as a passive partner, bearing in mind that he has all the time in the world to participate in other economic activities, unlike the inventor.

As have been submitted by some other contributors and importantly too, all agreements must be properly documented under strict legal guidance.

That's my little contribution and I hope it serves you.

You can be rest assured it serves me just right Sir. Thanks for your input.

bobowaja:
I have been looking for this type of post since God knows when on nairaland.

Well, now you have it.

[quote author=Melonny post=49639410]Partner A should think of the return he would make if he invested his capital into another business. if I were partner A I will demand for 70% of the retained earnings or profit..partner B- 20% [/quot
e]

Thanks for your contribution Sir, Indeed it is appreciated.

NaturFund:
In an Ideal sense, in every partnership there's always a silent one. He/She is usually the main source of the finance but in rare cases show action in the business.
Investors also act the same way because they let their money work for them.

But in this case, I think it all boils down to a signed document on the agreement of both partners. It's better to understand that without the money, the idea can't come to reality and is best to appreciate that without the workforce, the business won't happen. So it should be shared 50 50 without a signed document.


Best Regards,
NaturFund Team.



See more at www.naturfund.com

Thanks for your contribution Sir.

gibbi:
The active partner should be placed on salary commensurate with his/her efforts. Profit is then shared according to earlier agreed ratio. If the experience and knowledge of the active partner is monetised, what is the value? Depending of the value of this knowledge, it could account for extra 35% capital contribution or even just 10%

Now, that's a new take on issues. Thanks Sir.

Simple. The net profit should be shared 85:15, but the active partner should be paid for the work he puts into the job (just like an employee). So both partners have to sit down and agree on the wage rate for the tasks to be carried out by the active partner; and such wage or salary will be charged in the expenditure account. This is very important, because when the business eventually booms, the active partner will most likely step down from day-to-day activities and employ helping hands. This, to me, is the most realistic profit sharing plan

ugoonuoha:
This reminds me of every episode of Dragos Den #junkie
Bottom line: there's no standard formula. The tougher negotiator of the two parties, wins. Simple as that...or both parties walk away!(inventors are usually desperate for investors tho)

Hmm, true about inventors always searching for investors. Thanks for your take.

rychard:
Profit should be shared based on number of shares holding in the business, this is why it is important to register a business and set the profit sharing document in place. Anyways one good way to determine this is using www.slicingpie.com it has good resource to help start up business decide om equity and shareholding.

Cheers

Many thanks for the link. Truly appreciated.

wree91:
The funds should account for 70% of the equity while 30% for the business plan. Since he provided 85% of the funds he will have 85% of 70% about 59.5% and he who brought the idea will take 10.5% for his 15% plus 30% for his idea totaling 40.5%.
In addition who ever is runing the business should be put on a salary for his role in managing the business as this is an additional task.

Thanks Sir for taking time out to comment on this issue.

4C2215131:


Sir, talking about risks borne by the financier, will you still hold same view if the asset that the financier invested money on are recyclable by nature, i.e even at close of business he can still sell off the assets to recoup part of gas fund considering depreciation of course and if the assets are invoiced in gas name and not that of partner two or the firm.

Your view in this case would be truly appreciated. To recap, under whose name should equipment purchased by the financier's money for use in the business be invoiced?

Business entity concept- the business should be separate from the owners.. if I get your question right, it should be invoiced in the company or business name.. And all receipt should be credited in business account like the debt should be paid from business account..
All asset are sold at the realisable value..In a case the business ceases, the assets are sold and all liabilities are paid off then the partners share the remaining.

4C2215131:


Sir, talking about risks borne by the financier, will you still hold same view if the asset that the financier invested money on are recyclable by nature, i.e even at close of business he can still sell off the assets to recoup part of gas fund considering depreciation of course and if the assets are invoiced in gas name and not that of partner two or the firm.

Your view in this case would be truly appreciated. To recap, under whose name should equipment purchased by the financier's money for use in the business be invoiced?

Business entity concept- the business should be separate from the owners.. if I get your question right, it should be invoiced in the company or business name.. And all receipt should be credited in business account like the debt should be paid from business account..
All asset are sold at the realisable value..In a case the business ceases, the assets are sold and all liabilities are paid off then the partners share the remaining.

youngzoologist:
Whaoo...sometimes, I just love to read through threads on nairaland without making comment...their are ingenious guys in this country....my candid take....every contributions is a product of individuals experience and mindset. As an entrepreneur who equally engages in investment business arrangement...I've realised that the major factors in any investment partnership are, TRUST, TRANSPARENCY, ACCOUNTABILITY. These are rare factors to come by in partnership.
My submission in line with many other views....partners must understand models that best works for them....Nigeria market is unstable market because of the dollar index which determines the prices of goods per time....
We must understand that, the one with the idea is bringing in two assets either classified as tangible or intangible.... One "idea", two "labour"...these must be factored into the cost....the one with the idea must understand its financials well ahead....a realistic net income must be proposed.....there after...he can now offer either of these two models to his/her prospective investors
1. Return On Investment based on net profit realise or
2. Interest based on capital invested for a period of time.
For the Investor, his/her only asset is money.....so, such as to examine so many investment options that can bring returns in either short, mid or long term...taking into consideration risks or no risks...
....Hope to continue next time....nice thread anyway....love to chat me up for how my model works.....my whatsapp is 08077523538

Another refreshing angle to the whole debacle. Many thanks Sir for your input.

SirAweezy:
70-30 till Mr 85% recovered his fund. And the 40% to Mr 85% subsequently. The business wouldn't have seen the day light without Mr 85%.

A wonderful insight from a villains mind indeed. Thanks Sir!

SirAweezy:
70-30 till Mr 85% recovered his fund. And the 40% to Mr 85% subsequently. The business wouldn't have seen the day light without Mr 85%.

Some brilliant thinking Sir! Many thanks.

[quote author=freemile2ru post=49642021]
I just fell in love with you for this.
You said exactly what's on my mind
Now the business is yielding profit and having a future he then remembers his input and tried to be cunny. When he was sure of his ideas why didn't he get a loan instead. Exactly as u said. There should be a form of agreement between the two of them earlier on so he should revisit that[/quot
e]

My good Sir, the business is yet to take flight. don't you think you're being a bit too hasty to pick out a villain so soon? More so, this post could just have been created by the financier or an arbitrator. Well,thanks all the same for your input.

ADAMUdaCOWBOY:

Neither will the business have seen the light of day without the 85% and besides if the business had failed mr. 85% would have lost 2million naira and what will mr. Experience lose? His experience? Lol 70% to 30% in favour of mr. 85% or gerrarahia men!

Another way of looking at it Sir! Thanks.

vowsng:
when you hear dangote group what comes to ur mind? he who owns the largest share of the company in terms of money owns the company/establishment and the company can even go by his name. ur business idea without money is a balderdash. some dudes would securely keep their 2mil in the bank and tell u there is no money, at least for security reasons. if i may ask, the guy that brought 2mil, do u think maybe he doesnt have a business idea?

True talk!

kaboninc:


Can you accept a 50/50 arrangement supposing you're partner 1?

A fair question Sir. Thanks

sisisioge:


Yes. It is actually very fair because other investments where he sleeps on it might not fetch that much. Imagine the kind of profit to expect if he fixed the money in a bank ...

Well I do not know your investment appetite but am sure that in addition to the profit you'd want a situation whereby your money would be readily available anytime you need it

Cwhyte:
I dont know why some of you guys regard IDEAS as been useless.
Ideas rule the world.

The partners should however sit to discuss the success of the business.

It should be of note that most investors are ok with a 30% Return On Investment.
And partner B with the idea actually owns the business.

So 50/50 is cool with partner B getting a monthly salary for his effort.

40/60 is cool with no monthly salary for partner B

Another angle to consider. You guys rock!

Drabrah:


Thank u jare. U've said it all.
It's as gud as d guy wt 85% contribution employing him 2 work 4 him.
Aftrall, in shareholding 50% is enuff 4 u to claim ownership of d deal.

You Sir, have got a valid point!

padi94:
My opinion profit should b share in d same ratio as capital contribution(i.e 85 -15). however d business wud pay salary to d guy running daily afairs of 10% of gross profit or LOSS. This being d case, d guy wit d lower profit allocation can overtime buy higher stakes in d business. Dis will lead to growth of d business, beta management nd descision making, as well as more equitable profit allocation.

MY THOUGHTS THO.

Nice thoughts Sir!

SirAweezy:
70-30 till Mr 85% recovered his fund. And the 40% to Mr 85% subsequently. The business wouldn't have seen the day light without Mr 85%.

Lol.

If Mr A's goal is to recover his funds after a period of time, there's no way am giving him 70% of the profit. In fact, I'll rather we reinvest the 70% into the business and we share the 30% equally (and can add a small percentage interest on the loan - say 10% per annum) which will be paid monthly together with an installment of the loan until the loan has been liquidated