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Sweat equity: When partner contributions are hard to quantify

When two business partners in Nevada are facing a parting of ways, getting out of the agreement without losing everything may be challenging. A detailed partnership agreement should include a good exit strategy, the Huffington Post notes, and this could make the difference between business litigation and a successful split. One of the factors that will affect how much each partner is entitled to may be the contributions each made to the company, and this does not necessarily mean how much capital each invested.

According to Chron.com, many people choose to invest non-financial labor contributions into the company in exchange for stock, and this is known as sweat equity. While the work that a person puts into the company may be just as necessary as capital, the value of the contributions may be more difficult to document if the duties were not described in a written partnership agreement.

A business owner who has a sweat equity stake in the company may have been the one at the front lines making the company work, and so may feel that he or she should receive a larger share. If it is true that the company could not run without that partner’s skills, knowledge or expertise, going to court could seem more favorable for him or her. Even so, if the partners do turn to litigation, the outcome may be difficult to predict. Allowing a judge to determine the fate of the company could backfire on either partner, as it could lead to a forced settlement, a dissolution or even mandatory mediation.

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