John Adair and Raul Fontana decide to form a partnership. Adair will contribute $300,000 to the partnership, while Fontana will contribute only $30,000. However, Fontana will be responsible for running the day-to-day operations of the partnership, which are anticipated to require about 50 hours per week. In contrast, Adair will only work 5 hours per week for the partnership. The two partners are attempting to determine a formula for dividing partnership net income. Adair believes the partners should divide income in the ratio of 7:3, favoring Adair, since Adair provides the majority of the capital. Fontana believes the income should be divided 7:3, favoring Fontana, since Fontana provides the majority of effort in running the partnership business.
How would you advise the partners in developing a method for dividing income?