You are establishing a personal fitness business with your friend. You are both
ID: 388521 • Letter: Y
Question
You are establishing a personal fitness business with your friend. You are both investing $20,000 into the business. However, you will be handling most of the day-to- day business operation and all of the marketing. As a result, vou would like to receive 70% of the profits from the business. Your friend agrees that you deserve more profit, but believes that since you are investing an equal amount, the profits must be split equally. You decide to consult a friend who is an attorney. What advice from that attorney would be correct? a. Since you invested equal amounts,this must be a corporation where you each have 50/50 ownership b. Since one person will be doing most of the work, this should be a sole proprietorship. O c. You can form a partnership that specifies in company agreements how the profit will be shared. d You can split profits 70/30 using any form of ownership, so use the form that offers the most liability protection. e.You should form an LLC for liability protection, but you'll need to split profits 50/50 to mirror the amount you each investedExplanation / Answer
c. You can form a partnership that specifies in Company agreements how the profits will be shared.
Both of us can enter into a definite partnership agreement and get a Partnership deed prepared. Under the Uniform Partnership Act, it is not the right rather a privilege that a partner can enjoy for the additional efforts he puts into the partnership business provided the same is mutually agreed and mentioned in the Partnership deed. There could be various types of partners like Partners in profits only, Dormant partner (as is in this case), active partner (as me), etc. If nothing is mentioned in the Partnership agreement, then both of us will have to get the share in the profits equally. So making an agreement and entering into a formal partnership firm, is always advisable.
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