Profit Splitting Between 3 Partners, each with different skillset

[Benjamin Peterdon]

Hi everyone,

I would like some advice on how to split profit between 3 partners in the following scenario please

Partner 1) Silent partner, just assisting with funds to obtain financing and get the project going. Will not be involved otherwise.

Partner 2) Contributing funds AND will be hands on with the project on a weekly basis.

Partner 3) No funds to contribute, will do more leg work than Partner 2 and be heavily involved with the project.

Would really appreciate your input on what % each partner should get. If you need any other info let me know.

Ty in advance.

[Jonathan Twombly]

@Benjamin Peterdon

I would do something like this.  Separate out people's money role from their work roles.

If they are contributing money, pay them an annual preferred return on that money.  

If they are contributing work, they get a piece of the promoted interest (or carried interest), which is a share in the profits received by the deal sponsor IF the preferred return is paid fully and up to date (no arrears).  The promoted interest is usually something like 20-40 percent of the deal, subject to it being zero if the preferred return is not paid.  Or sometimes, to make it simple, it's a 50/50 split over the preferred return to equity.

If they sign on debt, give them an extra slice of the equity (if they are not contributing 100% of the equity) or of the promoted interest (if they are supplying 100% of the equity).

So, someone contributing equity funds would get their share of the equity and a share of the promoted interest, depending on how much of the work they will do.

Someone contributing only equity funds would be a silent LP getting a preferred return and a piece of the upside.

Someone contributing only work, would get a piece of the promoted interest only, the size depending on how much of the work they were doing.

And someone just signing on the debt (i.e., lending their balance sheet to the partnership) would get a piece of the equity only, and it would earn a preferred return and get a piece of the upside.