How are partner contributions calculated?
I am just curious on this one. I understand that partners usually have to contribute capital. What is the very general calculation used to work out how much would be required to contribute for x share in profits?
2 Answers
Assuming your ownership structure is straightforward--each owner's % ownership correlates directly to their share of profits--the general formula is (Individual Contribution) = (Total Partner Funds) * (% Ownership in company). Here's a basic example, you can plug in your own numbers:
Company XYZ
Owners:
- Fred 30%
- Jane 30%
- Angel 40%
Total Capital Contribution Required Currently: $50,000
- Fred == $50,000 * 30% == $15,000
- Jane == $50,000 * 30% == $15,000
- Angel == $50,000 * 40% == $20,000
Total contributed == 15,000 + 15,000 + 20,000 = $50,000.
There is plenty of room to complicate this simple breakdown, but that's the general one that I would start from.
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Ok thanks. I understand that. What about for an established firm. lets say there are 4 partners and they contributed $25,000 each and now some years later they want to take on a 5th partner. – Joel Cahill 11 years ago
Here are some calculators for Funding And Equity on startups :
The interactive infographic helps you understand
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time, and at exit.
