When starting a new business, business partners often assume that they should set up a 50-50 ownership arrangement. It seems easy. The partners can provide an equal financial investment and equally split the responsibilities of running the company day-to-day. However, this is often easier said than done.
Conflict is inevitable. Here are some reasons equal partners may run into difficulties.
Deadlocks on big decisions
With a 50/50 business partnership, major decisions regarding the company generally have to be approved by both partners. When partners are on the same page, this process can be very smooth. However, when they disagree, a deadlock can be reached which significantly stunts progress.
One way to avoid this is to enlist a minority shareholder. This is someone with a smaller stake in the company, but who has voting rights. They can break the deadlock and help implement a fair voting procedure that sees the business continue to progress.
Disagreements on salary
Very few companies make major profits in the first year. This means that business partners may not be able to take much of a salary after covering expenses. While this can advance after a year or two, partners need to show patience.
If one partner entered the venture to make money quickly, this could frustrate them. Business partners must be on the same page before making any investments official. It could take some time before that investment starts to pay off in terms of remuneration.
One of the best ways to avoid partnership disputes is to conduct your due diligence and make strategic decisions when it comes to ownership rights. Talk ahead of time how you will handle disagreements, and put it in writing. Seek legal guidance before you embark on your business journey. A lawyer can help you make significant business decisions that can affect the trajectory of your future. Contact us to talk about your plans. We help business partners prevent and resolve disputes.
