Sweat equity

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Sweat equity is an ownership interest that a person gains from contributing labor instead of capital. The term is often used in the context of partners who have equity in a partnership earned not from a capital contribution, but rather from their contributed labor. The Reformed Uniform Partnership Act § 403 explicitly allows for individuals to become partners through sweat equity, stating “[a] contribution may consist of. . . services performed for. . . the partnership or an agreement to. . . perform services. . . to the partnership.” For example, in Canet v. Gooch Ware Travelstead, the Eastern District of New York held that a plaintiff‘s sweat contributions in the form of searching for real estate developments were sufficient to entitle them to a partnership interest per their agreement.

[Last updated in April of 2021 by the Wex Definitions Team]