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Profit share! Should they have more?


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Hello all!

 

My and my business partner are venturing on our first property development project. We're looking to build houses/flats on land just outside the London area.

We're teaming up with 2 other people (close friends) who have expertise in business loans and the other in architect/structural engineer expertise. Me and my partner are essentially providing the equity and the other 2 are providing expertise only.

The problem is they're asking for 60% of the end profit share from the partnership. They say that as they're providing the expertise and are essentially managing the project they require a 60% share. From their view, we're just fully financing the project and sitting back, which is why we should only have 40%.

My view is that we're the ones fully financing the project and are thus baring the most risk and we should actually have a much higher profit share, around 60%-70%. 

What do you think we should do and what is an appropriate split? Any advice appreciated!

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Have they developed sites before though and how much are they actually doing? Can you get other reliable providers to manage the project? You might walk away with more but there’s risks. It’s hard to quantify without knowing potential issues, likely profit and timeframes. If they have the experience, you might learn a lot and then be able to tip the scale on future projects as you gain experience too. You could make the profit share performance related so the longer it takes the less they get. This enables you to get cash back out quicker too if they achieve targets. 

Jerome

Jerome@TaxAntics.co.uk

www.TaxAntics.co.uk
 

 

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  • 3 weeks later...

agree with the above.  If all you are doing is putting the money in, then you are in effect an investor, so would normally get around 8 - 12% return on your money.  Whatever you decide, make sure you have the security in place and drawn up by a solicitor to protect you.

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