Short answer
Separate the two jobs. Pay the working partner for the role, at roughly what you would pay someone else to do it. Share what is left as a return on ownership, by shareholding. Write down what each partner is accountable for, then have your accountant confirm how the money is paid.
It is one of the most common arrangements in Australian small business, and one of the most common sources of quiet resentment. Two people start a business as equal owners. Over time, one ends up running it day to day while the other steps back. Ownership stays 50/50. So does the money. The working partner starts to feel they are carrying the business. The other partner feels their capital and risk are being forgotten. Both have a point.
Why does an equal split stop feeling fair?
Because being an owner and being a worker are two different jobs. Ownership earns a return on capital and risk. Working in the business earns a reward for doing a role. When the two are bundled into one equal draw, the partnership loses sight of who is contributing what.
How should a working partner be paid?
A useful test: what would the business pay someone else to do the working partner's job? That is the starting point for rewarding the role. Whatever is left is the owners' return, shared by ownership.
What should each partner be accountable for?
Fair reward needs clear roles. If the working partner is the general manager, say so, and list what that seat owns. If the other partner contributes in specific ways, such as funding, key relationships or a board seat, record that too.
Where do tax and the paperwork come in?
How money leaves a company, whether as wages, dividends or loans, has tax consequences, and money drawn from a company without proper documentation can be caught by Division 7A. Agree the commercial principle as partners, then have your accountant confirm the right way to pay it and your lawyer reflect it in your shareholders agreement.
Partners rarely fall out over the numbers themselves. They fall out over never having agreed them. Our Partner Alignment Review works through roles, reward, decisions and exit with every partner, then briefs your lawyer and accountant to put it in writing.
Frequently asked questions
Should a silent partner get the same share of profit?
- On ownership, usually yes: profit after the working partner's role is paid is normally shared by shareholding. The difference is that the working partner's reward for the role comes first.
What if we cannot agree on what the role is worth?
- Use an outside reference point, such as what the business would pay a general manager on the open market, rather than either partner's view.
Do we need a shareholders agreement for this?
- It is the usual place for it, alongside decisions, funding and exit. Your lawyer drafts it. Agreeing the commercial terms first makes that work clearer.
Can a working partner just take more drawings?
- Drawings from a company have tax consequences and can be caught by Division 7A if they are not handled properly. Agree the principle as partners, then have your accountant set the method.
General information only, not legal, tax or financial advice. Speak with your own lawyer and accountant about your circumstances.
