Salaried Partnership Agreement

A salaried partnership agreement is an agreement that an individual in a business partnership draws a salary. This is in contrast to a normal partnership, where partners take a percentage of the company's net profit as compensation.

Function

One reason for a salaried partnership agreement is that it allows an individual new to the company to become a partner. This salaried partner is publicly presented as a partner, but not compensated the same as senior partners.

Considerations

Salaried partnerships are fairly rare in the business world. Partners commonly prefer a percentage of the company's profit, although salaried partners sometimes receive bonuses to compensate their performance.

Court Case

In the United States, there is no legal differentiation and only nominal differences between a salaried partnership agreement and a normal partnership. This was upheld in the court case U.S. vs. Moskowitz, Passman & Edelman. The court ruled a partner still receives a salary for the purpose of taxation, even if she is in a normal partnership agreement and her income is a percentage of the company's profits.

References

• The UK Document Shop: Salaried Partner Agreement
• Judicial View: U.S. v. Moskowitz, Passman & Edelman, Case No. 08-3017-cv (C.A. 2, Apr.