I’m selling a business where the operating partner has not taken payroll consistently for 2 years and now wants that paid ahead of any other loan payment what priority is his payroll?
Thanks for your question. The priority of your partner’s payroll would depend on the agreement you have with them and whether they technically deferred payroll for the last 2 years or elected to forego it. If your partner was owed payroll and simply delayed it in order to help the company’s cash flow, then their payroll would probably be considered a priority debt that would need to be paid before any other loans.
The first thing you should probably do is to review your partnership agreement to see what rights and responsibilities are spelled out for various partners including the operating partner. That should give you some guidance on how to move forward. For more insight into how partnership agreements are structured and how they protect the rights of partners, be sure to check out our how-to guide for partnership agreements here: https://fitsmallbusiness.com/business-partnership-agreement/
Best of luck with the sale of your business,
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