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The 50-50 Partnership: A Recipe for Disaster

On too many occasions, I have seen the same issue come across my attention. It is always the same story of two close, childhood friends who decide to make their dreams come true of starting a business together where everything including ownership and decision-making gets split 50-50. Do you see a problem with this? Well, soon you will.

Business partners believe that equal shares are the simplest way to go about things. They opt for this in attempts to avoid discussions and problems early on and believe it is the fairest possible way to approach matters. However, this is rarely the case. A 50-50 partnership is much more complicated than splitting candy bars and trading cards. Many people fail to see the potential negative ramifications that can stem from a 50-50 partnership.

Business partners are incapable of agreeing on everything and this quickly becomes apparent even if your business partner is a close friend. For this reason, it is imperative that as business partners you come up with a sophisticated method or management structure early in the business in order to solve conflicts in a reasonable manner when they arise.

First of all, this issue should only occur when regarding conflicts that truly affect the value and mission of the business. Such issues include material decisions, selling, buying, merging, and closing issues. They are important matters that are the “make or break” issues, which can cause lawsuits or liquidation. They are to be resolved at the highest level: the Board of Directors’ level. Resolving these matters are made much easier if each partner recognizes their responsibilities and are in control of their departments on an operational basis. Operational matters are to be broken up into their respective departments and decided at that level as opposed to the board of directors’ level. Usually, this is an allocation of power utilized in order to reduce a larger issue into a manageable one in which an agreement can be made.

I understand how easy it can be to enter a 50-50 ownership/decision-making relationship, and I understand the respect you may have for each other as partners. Sharing the hard work, respect, and the good and bad times together may seem like a meaningful concept and the right thing to do. However, this is the stuff movies are made of. The expectation that every matter will be agreed upon and that everything will work just dandy is seldom effective and highly unrealistic.

A great example of the difficulties encountered by a 50/50 relationship is marriage. Marriages are made of mutual and equal sharing and yet it is still difficult to keep one going. Although there are different issues involved, partnerships share the same quality.

Through observations, you’ll find that partnerships require a clear decision-making procedure. In order for things to get done and for decisions on larger issues to be made, there must be a “tie-breaker” concept and someone must have the final word when disagreements arise. A disproportion in the investment of time, capital, credit, assets, or skills invested can occur frequently. No relationship is ever exactly 50/50. Usually, cash is respected the most. As a result, the individual who brings the most cash into the business is the one with greater amounts of control in decision-making, leaving them at a 51% with the remaining partner having 49% of the share.

When dealing with a 51/49 split, when push comes to shove, the “money partner” can vote their extra 2% in order to control factors. With this split, they can presumably afford an opportunity to protect their investment and resolve the issue at hand. As a result, the importance of the cash investment is respected. I completely understand the value of sweat equity. However, keep in mind that cash is king in today’s business environment.

The main point here is to avoid 50-50 business ownership relationships as they can result in a great disaster. Control, a “tie-breaker”, and a final word will always be necessary.

In fact, the legal resolutions for these situations entail terms and procedures that are as follows: when a material disagreement exists within a 50/50 relationship of ownership interests, the business will be incapable of advancing. As a result, it will be considered as “trapped in a bottle’s neck“ in which the court will decide upon an orderly liquidation of assets for the benefit of the shareholders.

This issue should be avoided at all costs. It is the worst possible conclusion because it is always a disaster for all parties involved. However, if there is a 50/50% of shared power and authority with no arguments over important matters, this will be inevitable. The business will no longer run effectively and a disaster will arise for certain. So what about fairness and equality?

Here’s the advantage of Legal organization and operation agreements of an LLC: profits, capital gains, and losses can beshared differently than that of decision-making. For example, you may maintain a 50/50 profit split and hold a 51/49 decision making split.

Or you can have an even profit split and split the decision-making into two thirds. There are various ways to go about this conflict, but the result you want is to ultimately have one person with final control. Only one person is to say that there will be no impasse.

Only one person should have the authority to say there will be no deadlocks. There must always be a “tie-breaker.” Sharing profits equally and decision-making authority unequally is the best compromise. If you’re encountering this issue, it is not too late to change your plan but know that it will be difficult.

If logic is to prevail, resolutions should be made privately before a judge where the judge will order a sale of assets.

(See our more recent blog entry: “More About Structuring a 50/50 Partnership Successfully,”)

Call for help 413-549-2966

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119 Responses to The 50-50 Partnership: A Recipe for Disaster

  1. Larry Ryan says:

    What should be the profit split and decision making split be if one partner brings all the money to the business and the other partner provides the sweat? surely one partner would not take the risk for a 51/49 split if they are the one that will lose financially!

  2. the money partner should clearly enjoy control at the least and a significant majority at the most. the sweat equity partner should sign a note to purchase his share and thus contribute in an orderly manor to purchase his share…sweat equity while to be respected does not hold up to a money investment.

  3. YES of course, it the purpose of my blog to spread the information to all who need it.
    as well I invite direct calls to me 413-687-8388
    don

  4. Michelle says:

    I, unfortunately, have already made the mistake of entering into a 50/50 partnership. My business partner and I are not seeing eye to eye on many business decisions and things appear to be getting worse instead of better. Last week, my business partner said “I had an epiphany. I think you have to buy me out or I need to buy you out. I want a divorce.” After much thought, I agreed and drafted a buy out letter for her review for her to buy me out. My financials are such that I can’t buy her out. Once she received this, she looked at her finances and the business finances and decided she couldn’t buy me out either (the business is only 6 months old). Now we in a real pickle as neither has the funds to buy the other out and both of us are looking for control of the business. We have been friends for quite some time and we don’t want to damage that. How do we resolve this amiably? Any suggestions?

  5. this is silliness…you both have much to lose and must resolve this matter before your business collapses and the debt eats you both up. I would be delighted to speak with you both and help you resolve this sensibly, there are many fair and equitavble strategies available to resolve this issue, it simply requires both of you to be reasonable and realistic. Call me. I will help you navigate this tricky mine field Don 413-687-8388

  6. todd says:

    Okay, I am a husband of a woman who went into a 50/50 computer business with another man. I am 43 and my wife is 40 the other partner is 26. At this point in the buisness, it does make a small profit and has only been operating for a year. So I beleive there is potential. Now here is the problem, the 26 year old partner continues to take draws and uses the company credit card for non-business purchases, materials for his home bathroom, filling up his wifes’ car with gas, taking advances, playstation 3′s and the list goes on. How the heck do we get him out of the business.He is a great tech but poor businessman. Also our family put up the money for the business and against my advice she still gave him 50/50 holding. How in the heck do we get out of this!!! HELP!!!!

  7. shut his card out, make him use his card and submit expense reports fr reimbursements and avoid a fistfight….applies to your wife as well…use your accountant as the bad guy here with a stern warning about merging the personal expenditures with business….

    could jeopardise corporate shield…etc.

  8. Ace says:

    Hey Tod,

    Well, i can’t say i’ve made the unfortunate move of starting a 50/50 partnership just yet. Hes my childhood/best friend and neighbor but hes got something i need to run the business that i proposed to him. We still havent launched the company yet but were on it. So far weve been able to agree on most things but at times unnecessary comments for the sake of having something to say get on my nerve. I feel were both thinking about ‘whos going to run the show’ at the back of our minds and it surfaces in some discussions. Theres noway out of the partnership but as im going to be a partner with my own company (joint venture) do you see anyway i could avoid conflicts with him? I was thinking we could have co-ceo (i know its not anybody’s favorite) structuring where i would be in charge of decisions in my field and him in his field…any major decisions would then undergo a voting procedure to pass or not. Am i correct?

  9. Bad idea, you cannot both be co-ceo’s. But your idea is correct, separate each of your responsibilities and thus authority by defining the separate areas each of you will be managing.You can both be managers of different aspects of the business, that works, on an operational level and then meet as a Board of Directors for policy decision making and financial decisions.

  10. Jason says:

    Hi Donald,

    I am 60% owner of a partnership with no written partnership agreement. I “fired” the 40% partner, who has been absent from the business since then (August of this year). He wants what I feel is an unfairly high amount to get bought out, especially because the business is losing money. I believe we will eventually come out of debt, and since he knows I’ll make that happen, he wants to just hang on and wait it out – expecting that some day he’ll get a big payout.

    How can I prevent this parasite from hanging on? He said he would take $9000 in payments of $1000 per month for 9 months. We lost $20k this year and I could get the money, but it will hurt. Plus he really doesn’t deserve it, in my opinion of course.

    I’m thinking that if/when we do make a profit, I’ll just pay my own salary (i have worked for free for 3 years) and hire new employees, thus leaving him no money ever. Is that possible?

    Also, he left in August. If I buy him out as of January 1st, 2008, and he took $8000 over the course of the year in a partner draw, wouldn’t I classify that on my taxes as a contract wage – leaving him with owing self employment taxes, etc. on it?

    Thanks!

  11. In consideration of your majority ownership, yo are in full con trol, and can do pretty much whatever you want o remove this issue. try this strategy out:
    based on your losses, decide to sell the assets into a new LLC to strip off debt, and upon the re=org require a cash buy in which you can do but he cannot, or will not and thus leave him behind…there are many variations of this theme but the point is reorganize with

  12. ernesto says:

    Hello.

    I had a question. What would you consider to be fair in this situation. A friend and I are purchasing land in a foreign country. We are going to make a resort out of the property in 2 years. The purchasing of the property is 50/50, but he has more capital for the development. BUT..he cannot move there, but i will…if he invests the extra 200K to develop, how can i remain a 50..50 partner if the money is his..how can this be fair to him? My moving there and overseeing the beginning is worth something..any advice?

    ‘nesto

  13. Sweat equity is the issue, however in view of your cash contribution on the land acquisition, you are also invested, thus I agree with your position, going over there and managing the development is worth something, but how much? Are you going to be paid or are you contributing your time? What is your time worth to you? to the project? is it $200,000. ?, possibly. If you are getting paid to manage, then your partner deserves more, if not you should come in almost equally, 51-49….the extra point go to the cash partner.

  14. Dave says:

    Hello Donald,
    I am considering going into business with two other individuals. We will each invest $10,000 and contribute to the business equally; however, only one of us will be using our credit to establish the business. The person putting up his credit has been known to make hasty decisions without thinking things through. Should this person be allowed to obtain 51%? Or, should we consider splitting ownership equally with a 2/3 majority vote for all business decisions? Any advice will be greatly appreciated. Thank you.

    Dave

  15. As stated in my post, someone has to have the tie breaker. Splitting profit does not have to follow the percentage of ownership in an LLC so both decision making and ptofit split can be different. if two thirds majority does it for you then its fine, a long as someone can break a tie.

  16. Raymond says:

    Hi -

    If there is no buy/sell agreement in place and one partner wants the other one out (50/50 partnership)AND claims that they have done ‘more’ and therfore are entitled to a greater share of the equity. Simply, a disproportionate buyout…what is the ultimate conclusion?

    Is there any way for a 50% shareholder NOT to be entitled to 50% of the value of the business under any circumstances?

    I appreciate your time and expertise.

  17. 50/50 means just that, it controls so unless there is a written agreement to the contrary, it is irrevocably 50/50. Second here is no buy out agreement thus all that remains is the stock split which controls distributions. even split.

  18. Allan says:

    So my friend and I want to start a company. I have all the equipment and skill set needed to hand the jobs. I also have a few clients that thus cash flow, plus 20k in the bank. He will help run and basically sell our products. He as a little money so he only want $500 to a $1,000 a month for the next 6 months so he can get by. Plus commission on sales.
    I want a 70/30 split. He is upset at this, am I wrong in thinking I am bring more to the table? He wants a 51/49 split so I can have control but so he does not feel like an employee. I think that 30% for him is very fair.

    What are your thoughts?

  19. Lauren says:

    Hello,

    I have a question in regards to me and my business partner we own a hair salon. My partner and I put the same amount equally into the business and got an investment together. We have an written agreement that we are both 50% owners of the business. My responsiblity towards the business is the administrative and business side for example divising a LLC, establishing the website, brochures, business cards, hiring staff etc. Her responsibilities are servicing her clientele and new clients. We currently split all the overhead expenses. We have been open for a month and we are trying to find staff for our salon but havent found them yet. All of the profit the business is making so far has generated from her clientele. My partner feels that all the money she is making she should keep 100% of the profits and only contribute to her half of the overhead. She expects me to pay half of the overhead but I receive no profits from her clientele. But she asks me to help assist her with her clients. I feel my contribution is just as beneficial as her part…am I entiled to 50% of the profits?

  20. Absolutely…fair is fair, and that was the deal…she works for the LLC, she is an owner, not for herself.

  21. Sean says:

    I am currently in a 50/50 partnership over a restaurant. My partner has been stealing money and product for months from the business and has done many other negative acts to further harm the establishment. Most of which i have proof of ( deleting tabs and pocketing money, writing nonsense business checks that bounce on purpose and forging my name, taking product for personal use, making business decisions without my council ) I have a separate full-time job which limits my time available to spend at the restaurant, but I am continually forking over money to keep the the place afloat. We both have lawyers, but I have put forth the paperwork for an emergency restraining order to get her away from the business in efforts to save the establishment and allow proper time to take her to court on a final decision. Of course I want her out, I’d love to keep the restaurant going. Any help or comments of what further I can do to help my situation?

  22. how about direct confrontation. call her out and confront her with the proof and ask her to transfer the stock back to you and leave the partnership. costs les, happens sooner and gives her a chance to confront and accept her bad behavior.

  23. Alexander says:

    Hi Donald,

    I am about to start a partnership on a catering business that I own for about a year. We haven’t decided how we will split the profit yet. We will be discussing about it this coming week. She will be buying some of the machinery needed and she will take care of the rent and some of the expenses, whenever is needed, until the company can stand on its own feet. I will be doing the work. I do have a website already designed, some clients who will bring some of the money, and I do have some of the catering artifacts needed to run the business. Also, I am using my name renting the space. What do you think would be a fair share for witch one of us and what kind of partnership do you think would be best for us?

  24. I do not ave enough info to help, it seems like both are makig equal contributions, the real issue is who is goig t get the 51% CONTROL faxor, splitting profits is far less important.
    What each of you are pulling as a paycheck is equally important. You already started he bsines so she is buying into it, you are working full time, i didn’t say if she was, however it sounds like you are the main act and she is supporting it, the ownership should be skewed in your direction…75-25. based on insufficient knowledge.

  25. Ace says:

    Hey Tod,

    I wrote to you months ago with regards to my partnership with a good childhood friend. I realize now that creating dreams for others (I hate to seem conceited) may create nightmares for you. He wants to file for trademarks in more than one country. It was I who kept disclosing my eagerness to create a brand and go global..somethings are better left unsaid. After agreeing that we would start a joint venture I decided -with myself- that any global progress would be under my brand name and not the joint ventures name. How do I go about it with him? I’m open to him being an investor in my brand but I want to put it to him in a way that non-hurtful and mutually beneficial.

    Thanks

  26. talk to him…be candid, honest and clear. It is ok to do what is best for yourself as long as it is done with integrity and with communication. Then let the chips fall were they may. Do not give in because if emotional insecurity. It does not matter what he thinks about you because of this move, it does mater if you handle yourself well. You can do it.

  27. Kathy says:

    I entered a 50/50 partnership with my daughter in a boutique business. I fronted all of the money with the understanding that she would pay back half. Two years and a lot of debt later, I wake up and realize that this is going nowhere fast. She has yet to put a dime in, and only says that hopefully in five years that she may be able to start paying in.I have another daughter willing to buy in the company with a substantial buy-in. Naturally, the first daughter will have nothing of it. Is there anyway to get her out? Pretty much she is owner on paper only. Is there anyway to get her off the papers as business owner? One other note…all of the debt is in my name, as well.

  28. Have the other daughter buy your share out and then le the two daughters make it work…talk to her Mom, get it straight, you are still the mother, she must respect your word. This is not a legal issue bu an opportunity to teach her how to be responsible and respectful.

  29. marty says:

    Don i am an optical lab optician and have been for the last 16 years of my 43 years of living.I’m looking to go into business with a local lasik doctor who wants to do optical retail soon i want to be a partner in the optical including frames and lenses that we purchase for his office.I
    do believe that i can get a loan from the bank to build the lab and I’m willing to go 49/51 since he’s been around for years and is well known .good idea or not

  30. Isiah says:

    Hi Donald,

    I own a video production and I have been in business for 2 years now. I am considering going into an LLC partnership. I have built my name up locally in my field for shooting quality wedding videos and special events. Now I am trying to get into the field of corporate video and higher level productions. My potential partner has a lot of experience in those fields, so I feel he would have great value to my company. We both own equal amount of gear and are willing to go into the business with the same amount of capital. I feel a 50/50 split on profit will be fair, but what do you feel will be a fair split for decision? Since I have owned the company for 2 years now. Also if I have a greater split on decision will that help me if the partnership fails? Can I simply give him his 50% profit and take complete ownership of the business?

  31. Possibly, it depends entirely upon how and what you say in the articles of organization. You can control the decision making and thus control the destiny of the entity, it ma be a little more complicated hen suggested but the general answer is yes you can slit evenly and control the decision making process including dissolution.

  32. In a manner of speaking, you can divide profit sharing from decision making any way you choose. Yes you can control the situation completely.

  33. Reynold Desrsiers says:

    I am a decorative concrete specialist and I’ve been in business for myself for the past 6 years ( Inc ) I was approached by a friend who’s a local politician to create a new company as an LLC, He wants to bring a 3rd party that has major connections with contractors and builders to help us land big commercial jobs. Now I am being offered 40% and 25-25% split for the other 2 partners and 10% set asides for the business. My problem is that my partners will not bring any cash to the new business except for their promise that they know the key players in town and they can also help on the administration end but I am the only one that will be performing all the labor. Is 40/25/25 and 10%( toward the business) a fair deal considering that I have all the knowledge and will be the only one doing al the work.

  34. its a tough call. If they do in fact bring in the big contracts it is probably worth it, if they do not then its a bust. Another way to deal with this is to split the profits as described but leave the ownership to you, or split the profits and allow you to have control over the corp at least 51% Remember in an LLC profit can be shared differently then ownership. so you can still control the company and split the profits as desired, no good reason to give up control but you can split profits differently. Overall, they are being greedy, but the numbers may make this worthwhile. Ask them what they will guaranty, and perhaps you award them percentage points based on what they bring in, that keeps everyone honest and the deal fair. Another way is t simply commission them on the sales they brig in…

  35. DC says:

    Hello,
    I originally created a business as a sole proprietor, but my financier wanted 50% of the business to “make sure we could pay the loan” as were his words. Now he has his wife involved telling me she is also an owner due to there involvement with the loan. We have discussed allowing her to manage an area of the business, to which she doesn’t have a clue and refuses to make any adjustments for bettering herself or the employees she is supposed to be managing. I try to advise her about the correct decisions as I have been involved in the industry for 8 years, and she ignores me constantly. Her husband, my partner makes excuses for our employees inability to perform instead of taking corrective action. Recently when I mentioned a raise, I was told that his wife and I need to be on the same pay scale. Our roles, experience, ability and rapport with parents and staff are on complete opposite ends of the spectrum. HELP!! What should I do to save the business I founded?

  36. You are definately in a pickle,,,a few thoughts, Confront your partner and discuss the issues and inform him that you are very unhappy and need to resolve this issue with him as you need to be able to control this matter as the business is suffering…if talk does not work, let him know further of your discomfort and suggest tha it may be time to wrap it up and close the doors…this will get his attention. Were it goes from there is up to the two of you, but the bottom line is you must assert your position and protect your interest or all will eventually be lost. So get in front of the train while you still have a busines and flex those muscles.

    On a technical basis depending upon the corporate by laws, I wonder what provisions are made for your partner, is he a director, do you control anything at all? Does he really have he right to make operational decisions or are you just allowing him to do this? It is possible that he does not have the right and thus you my call a meeting and either fire her or do what ever your powers allow. check it out. In the end a 50-50 partnership is a wash out which can result in the liquidation of the business as it is a dead end street for both of you if this continues. Good luck.

  37. Ina says:

    My partner and I decided to venture off and do retail store together, as 50/50 partners, with plans on opening up a second shop 18 months after 1st one.
    We originally agreed to open the shop in the city I live in. She lives in EU.
    It has been about 2 years and we are getting close to LLC’ing the partnership at the end of the month.

    These are the facts:
    -The name/logo, business idea and plan have been created together, completely 50/50.
    -We both agreed to put down 25k each and have one main investor. Both of us have people on each end that show interest.
    -She works freelance 8 months out of the year in EU.

    My current concerns are:
    -As 50/50 will she be able to bring in 50% of what she claims.
    *She says, yes. 3-4 months out of the year she will be in the states, at the shop. While she is in EU, she will work at night to stay on top of the business. Once the business is on its own feet, she would quit her job and focus on store.
    -We are both at a disadvantage. We do not have capital. 25k will come from our families. But what if we can’t come through with that end? What if she can’t, and I raise the 25k and bring in the investor. Or she brings in the 25k and I bring in the investor, could this still be a 50/50 partnership?
    *She says if it is family that is investing, then it may be different but if it is, say, my boyfriend’s business partner investing, she is still entitled to 50/50 partnership on our end.
    -With plans on opening up a second shop 18 months after, I stated that she should open the second one in her country. She claims that it would be best to open it up in my city. I stated that it would be a little unfair to be running two businesses and her still live in another country. She claims with her being here 4 months out of the year and working via email, it would be fair. She would handle all international accounts, shipping, etc

    I almost feel that she should be responsible for raising all the money as it seems like I would be the working partner, marketing the company in the states, and dealing with the day to day duties (although she claims she would do the same, marketing in EU, dealing with day to day operations, I am not convinced. The difference in hours alone will leave her at a disadvantage.

    I am feeling uncomfortable and we had a meeting about the concerns and feel we just went in circles.
    Does this sound like a 50/50 partnership? What would make this a fair deal?

  38. It sound unworkable and not like a 50/50 relationship…you both need more clarity and focus on the plan, it sounds as if neither f you are really ready for this investment and commitment, however 4 months does not make an equal commitment and absentee management does not work.This is a disaster in the making, besides it must be a 51-49 deal with one fo you in control.

  39. Neither of you are ready for a partnership. 4 months a year does not make a 50/50 relationship and absentee management does not work. One of you needs to be in cntrol with 51% but this still will not make this partnership work, its broken already.

  40. Lucy Jones says:

    My husband has recently set up a business with an old colleague/friend on a 50/50 basis. Whilst this company finds its feet my husband is still working full time. The nature of the business is internet security/ethical hacking and there has not being any initial outlay needed on either side. The work is starting to come in now but, my husband is fully qualified, fully security checked, vastly more experienced and, most importantly, he can cover ALL the services offered by the company but his partner is much less experienced with limited capabilities, much less qualified and with lower security checks. Also my husband is the one with all the contacts – and the gift of the gab! If my husband starts to take on contracts with his new company then hands over half the money to his parter he would be worse of financially than his current full time employment! Does a 50/50 split literally mean 50% of whatever money is brought in or can you still own 50% of a company but legally pay yourselves according to what work you actually do? or do we need to get the percentage split changed accordingly – this could be quite an awkward subject to raise as we have got this far agreeing to 50/50 but we really hadn’t thought it through. Lastly, my husband is more than capable of running his own business without a partner but he hates all the reporting and paperwork where his partner fits in perfectly for this – but does it justify a 50% share?

    Any advice greatly appreciated.
    Many thanks.

  41. Em Kurimbokus says:

    Me and my partner started up a ltd company several years ago, he has no involvement in the business other than the fact that he is also a director and 50% shareholder. The company is running at a loss and has been for some years. We have now broken up and he wants me to buy his out, what do I do? If he wants out should he not pay in 50% of the losses? can he wind up my company? can I simply remove him as a director whereby he relinquishes all responsibility to the debts of the company? The company currently shows, as, owing me a large sum of money and him a small sum to which he is saying is incorrect. The accounts have been showing these figures for a number of year and have simply continued to carry forward each year. My partner said that he loaned in more but the accounts are not showing this and my current accountant says that as she has only been doing the accounts for a couple of years and that she cannot confirm exactly how much he has put in and can only go by the last set of accounts filed from when she took over, can this be right? if so what do I do as he is complaining about the incorrect figures?

  42. Eric says:

    My Father offered to me 50% of his business that I had worked for, for the last 11 years. The problem is this. In March I left the company becuase my Father and I do not agree on how to keep the business moving forward, and begin to put it back on it’s feet. That conflict has not only made my life stressful, but also everyone else’s lives more stressful, even the employee’s lives. I don’t believe that we can operate at 50-50 partnership. Our goal my be the same, but the paths are 180 degrees apart. I feel we already have conflict, and I don’t believe that owning part of the company will change these conflicts. I offered to either buy 100% of the shares, but he felt my offer was unfair and to low. I then experessed I would be willing to buy 51% or more. He didn’t like that offer and insisted on 50-50. I have cash on hand to buy 30% of the shares, but I don’t want to put my money in a shinking ship, unless I’m allowed the decision making power to fix it. The problem my Father has is that when I left, a lot of future intellectual property that is in my head left with me. I engineered 90% of our current product line, and I also manufactured the majority of it too. I feel his offer comes on the heels that he can’t just replace me, my absense is effecting the business in producing product, and his accountant confirmed my offer was more than fair. I care about the companies customers, employess, and product. I loved doing the work, but not the conflicked with my Father. What options besides a 50-50 partnership do I have potentially to solve this problem. Any advice or resources.
    Thanks,

    Eric from WI

  43. Donald Todrin says:

    You have a real problem and are absolutely correct in your thibking, a 50/50 deal would be a disaster at some point in time.. The issue is ego, and you have to figure out what it is he really wants to protect, here is a thought, Perhaps he will be satisfied with a 50/50 profit split but a 51/49 control split, this can be done in an LLC were profit can be distributed dispropportionately from control…But hold your position, it is correct. He will figure this out in due time.

  44. hedi alavi says:

    Hi Donald,
    I bought a franchise about a year ago and since then, have decided to take on a partner. I have just found a location appropriate for operating the business and have realized that I need more money to start up the business, therefore the partner. This partner is not allowed to be a franchisee so I will only hold that right. She is however willing to start another LLC with me as 50/50 partners with the S corp I have made to represent the company and also pay me half the franchise fee. the franchisors however do not recommend a 50/50 partnership. I think it’s only fair because she is not going to be a franchise owner so I have the ultimate word as it pertains to the franchise. She is giving up a lot to do this and is not willing to give up more…what is the best way to handle this?

  45. Donald Todrin says:

    Hedi Alavi Remember in an LLC you can split control differently then profit sharing, so you can keep it 50/50 for profit sharing but you should have decision making control, this can be controlled in many ways thru the operating agreement

  46. Deirdre says:

    If one person pays the bare minimum to get by on, but no salary, and has limited involvement in the company, and the other has extensive knowledge, designs and creates all the products, invests %100 of her time in selling marketing advertising, and in charge of production. Should a 50/50 split even be a consideration?

    • One fact you failed to mention which is brutally important and would trump all the factors listed…i the original capitalization…what did each of you pay in to start the venture. This is super important, thus without knowing this answer but based on everything you did mention, of course a 50/50 should not even be considered. Actually if you read more of my material I strongly urge there to never be a 50/50/ partnership no matter what. Someone has to be in control.
      Remember in an LLC one can split control and profit sharing differently. Good luck.

    • Donald Todrin says:

      Clearly not a 50/50 partnership, so split more appropriately. …please read my comment to your comment at the post, I had more to say…thanks for asking

  47. Ace says:

    Hello Tod,
    Me again:) Well, we’re finally going to be signing the contract for the start-up. As we’d agreed, both of us will have our responsibilities and major decisions to be taken during Board meetings.

    It says in the contract that the Chairman has to elect a Vice Chairman…the Chairman is his father, I’m fine with that due to his experience in the field. However, I would like to become the Vice Chairman as I find it important in the process of making decisions during our Board meetings when his father is absent…I’m not sure how to go about it with him and I’m not sure who his father is willing to elect either.

    Again I may sound conceited but it was me who developed the majority of the concept and brought them in as partners. I also see as it as a form of merit for my initiative.
    How should I deal with this? I don’t want to bring up any unltimatums such as ‘I will agree to your father being Chairman on the condition that I be Vice Chairman’.

    • Ace,
      It is impossible to tell you what to do, but I will say this, negotiation is about compromising so everyone gets what they need.
      If you need to be vice chairman then that is ne of your terms and you should state it as so and demand your due. Everything else is secondary.
      Demand what you need, get what you need or the deal is no good.

  48. Brett says:

    Don -
    I am currently in a 60/40 business partnership, I am the 40 percent in an engineering firm. Have been in business almost 3 years. Unfortunately it has come to a point where I want out. The company is an LLC. What are my options as the lower percentage within the partnership? Does he have to buy me out? If so, how do we go about it? Do we look at all profits, equipment, etc, or just the profits? Any help would be much appreciated!!

    • Brett,
      Tough question to answer without a whole lot of additional information, but basically, he does not have to buy you out, you really cannot make him, easily, there are many things you may be able to do based on operating agreement, read it. Yes equipment, inventory, receivables, profit all figure into the worth of the company and thus the buy out. It is difficult to comment further without more information. Who is managing director and where does decision making authority rest, with the managing director or with the member, an important question. He can buy you out with a long term payment plan…lots to consider.

  49. Brian T. says:

    hows it goin i am stuck in a 50/50 llc towing company in new jersey. I had some issues that i lost my drivers license for 6 months an me and my so called business partner made an agreement between each other that i was gonna do the office work, advertising, etc. . Everything goes great for a few months (2). He had some family issues an things went south for us , i was getting called the low life business partner . He is hiring people with out me involved, i am not collecting a pay check from the company, the bank accounts have 0 money in them, i am locked out of the company email, so i want out. So i emailed him cause phone calls aren’t getting answered that i just want 2500 dollars to sign the papers, thats like 7-8% of my 50%, thought i was being nice an not going for my full 50%, an send me paperwork so i can leave company cause i don’t want to be responsible for things i am not participating in. He emailed me back an told me -

    “I will have to give you a break down on your half an the amount you need to put out for your share of taxes. As for you I’ll keep. your name it works in my favor I need to see all the receipts of equipment purchased within the amount of time you did contribute till now. Correction the state will check so do I just give them your address . The wrecker YOU bought I’m sure will be a great asset to the company. When you choose to reevaluate your thought plan I will waive the tax fees an just be the better adult and pay for a deadbeat so-called partner. I can be reached at this email address or ***-***-**** which is an will still be active. Ps good luck with your new towing company. Have a enjoyable holiday”

    i started another company an i bought a truck so i can start over again, i don’t know why my new truck is gonna be a good asset to him cause it has nothing to do with our company we started together. I dont know what to do here, should i jus sign an go an make it a loss, or go back after him ?? If you could help it would be appreciated
    Thank You,

    -Brian

    • Donald Todrin says:

      I need much more information to give you any real advice, however, it appears you are getting booted out and without consideration of your ownership interests, he simply cannot do what it appears he is doing, I would get a lawyer and challenge him. Don

  50. John says:

    Donald, I’m a high volume restaurant/bar/nightclub executive that is going out on my own. I have a financial partner that is willing to finance portions of the venues I will be purchasing. He wants to be a partner. I said fine. I told him we could become partners as long as he put the money needed down (40-50%) before owner financing or loans that will buy the rest. I will negotiate all deals and leases. I will manage all operations. I was thinking of giving him 50 percent of all profits and 10 percent in decision making. He is a great negotiator and I can always use his help during those processes. I will carry a salary from the company llc and each business and its llc will pay the corporate llc a management fee monthly to cover those expenses. As partners we agreed to keep all earnings in the company after paying my salary and any normal expenses. Does this sound too good for me the “sweat equity” guy and should I expect him to ask for more ownership before we sign the agreement next month or does this seem fair?

    • I like it. The only issue I see is the 10% decision making percentage for the money investor. He may want to control over 50% of that to protect his money and he would not be wrong.

  51. Brian says:

    Donald- I am in a General Partnership as a side business (computer service oriented). Both my partner and I have other full time jobs. However I may be retiring in the next 3-4 years but my partner cannot retire for at least 17 years. If I retire in 3-4 years I would like to do our business full time (and my partner would still remain part time). On another note, the distribution of work is not equal and the amount of business generated is not equal either. I do about 70% of the work and have brought in about 90% of the business. Given those facts, I was wondering what your thoughts were on how to fairly distribute profits/losses. We are about to sit down and form either an LLC or S-Corp.

  52. Derek Rhode says:

    Hey Don,

    Your article was very informative, thank you. I have a person I was wanting to have a 50/50 business partnership and he said he wanted to have 51% and I have 49%. He also said he wanted to put me under officers as a vice president in a LLC but I am a little weary to agree to this. Is there anyway that down the road he could get greedy and boot me out with the 51/49 partnership and me as a vice president? Also should I pick another director position such as a co-founder? All I want to do is make sure that i can stay in the partnership securely as the person with 49% of the company. Is there also a way that i can insure my votes toward decisions are more considered heavily before being disregarded? Thanks Don!

  53. Luis says:

    Hi Donald, I am in a three even split partnership where two of the principals have active working roles in the company as managers and sales. Profits are evely split monthly amongst the three partners with no additinal compensation to the working partners. Should the working partners receive additional compensation such as salary, commission or both? if so, is there a general rule or formula for this scenario where there is a profit split plus salary and commission?

  54. 49er says:

    Hi Don,

    I am the 49% shareholder in a land surveying PLLC and the 51% owner took a job in September of 09 as he wasn’t willing to go without pay due to the economy. I have effectively run the business alone for all of this year and my “partner”, is still working for this company. He actually enjoyed a company truck, phone and gas card for almost 6 months while working for this company. He recently turned in his card and phone and we are going to distribute his truck as part of the buyout.

    Neither of us is really the “money” partner, the 51/49 was on suggestion of our attorney. He paid $51 and I $49. We started our business with loans to the company, I actually bought a truck personally for field use and was paid mileage and subsequently sold the truck to the company. Not sure if that makes me the money person but that was really the only personal expense besides pretty equal loan guarantees.

    We have gone round and round on valuations and I have recently agreed to my partners buyout numbers but am having difficulty now getting him to the table. He put a buyout number out there and refused to negotiate so I accepted his number. The buyout agreement has been drafted by our atty and he has already come back to me twice with changes to negotiate up!?!?!?

    Our operating agreement is pretty generic, I can provide. Questions….

    Can the 51% owner force dissolution and how would that unfold?

    What rights do I have as a minority interest and the one who has been running the business for the last eight months?

    Thanks for your time!

  55. Dell McDonald says:

    Hello Don,

    I have offered 50% ownership to build out a business into a franchise. I would focus on the business development while the other focuses on the product. Thoughts?

  56. Dell McDonald says:

    Hi Donald,

    How would YOU structure a 50/50 partnership which includes the 51% decision making provision? That is what other provisions/terms would you include to ensure a successful “marriage”? Succession/cessation planning? Rights of first refusal? What about if an investor wants to purchase business, is there a set price or percentage over a particular multiple you would include?

  57. mary says:

    I have a business in partnership with my sister and brother.
    We all contribute equally. We clean vacant properties.
    it started like this… Mmm -Bbb- Sss PAY FOR STARTUP COSTS EQUALLY.

    mmm-myself &HUBBY – have the idea, the name
    bbb-brother-follow through
    sss-sis &HUBBY-follow through (she takes all the phone calls and deals with customers) she decided to do this on her own. we did not nominate her.
    this means 33.3%
    my sister then tells me..WE NEED A BABYSITTER… I THOUGHT AT THE MOMENT, YES WE DO. SHE SAID..My husband can take care of them. I SAID, GREAT.
    about 3 days later by brother in law says were gonna split everything in half. meaning mmm25% bbb25% and ssss25% and hubby25%
    this was not said in a meeting or anything ..just a quick chat. bbb was not even there. i didnt see a problem with it since we were starting up and needed to buy all the cleaning material. its been about 3 months now.
    weve had several properties that only 3 of us participate in cleaning the 4th person, meaning sister or hubby stay home and take care of “their” kids. Not mine.
    mmm and bbb were on vacation and were unable to participate in cleaning 3 properties… we still got paid. this time (sss & hubby participated for the first time in cleaning togehter) split equally.

    today we will be cleaning an office…. sss will stay home and meet up with one of her clients (other business- we are not involved) and and hubby will work with mmm and bbb
    yes brother in law passes out the flyers and all with the help of bbb and sometimes mmms husband. about 3 hours a week if that… it has not happened in about 1 month or so.
    I just want to hear it from someone else
    should we be splitting it differently
    like sss&hubby 36% bbb32% and mmm32%
    help help.
    iam in a rush. i hope it makes sense… a little confusing.i think.

  58. Peter says:

    Hi Don,

    Thanks for this post. It’s been helpful, but I’m still left concerned about entering into a partnership in which I would have the minority interest. In short, I have a concept (sort of a food concept) that works very well with an existing small chain. The owners (whom I have known for several years) very much like the idea and wish to expand their “brand” using my concept. We would continue using their name and branding, so I understand their desire for majority interest (control). HOWEVER, it’s my concept still, and I have many ideas to develop it. I also expect I’ll have more ideas as it progresses. If I’m a minority partner, it seems my “vision” could only be taken under consideration at best. I would have to subordinate my role to their own vision, an this does not appeal to me. Also, this concept, especially when married with a complimentary brand as theirs, has great potential. How can I be sure I don’t get kicked to the curb at some point? Thanks!

    • Don Todrin says:

      There is a way….I explored it in one of my posts, but it goes like this, if you are using an LLC you have the opportunity to share profits differently then how management decision making is controlled. In other words you can have a minority of profits and a majority of decision making control, this will satisfy both sides, profit vs. control.

  59. Devin says:

    If two partners can’t decide on who gets the 51% vote, can there be a clause in the contract written in such a way that the swing vote will alternate between partners when there is a stalemate.

  60. Brian Jones says:

    Don,
    I am in a 60/40 partnership. My question is what percentage of the operating cost should I be paying for our business. I am the 40% partner. The real issue is the insurance policy that cost about 6,000$. My partner and I are contractors and are required to have 1,000,000.00 insurance policy to be able to work big contracts. The problem is he is using that same policy to cover-down on contracts that he has separately that I am not even involved in. Is that fair he is using our companies insurance policy after I payed 50% of it.

    • Don Todrin says:

      No it is not totally fair, but what the heck, talk to him tell him you feel uncomfortable and would prefer he do something for you to even the score, be it paying more for the policy or kicking you a point on his outside business or whatever will work for you, but it is a natural inclination to use expensive assets when available, I understand both your positions…talk with him and work it out. He is your partner.
      dt

  61. Bill Riley says:

    Don,

    Great stuff. Here is my scenario:

    I am 50% partner in an LLC. For the two years of the company I did all of the work while my partner worked at another company but fed some clients to me in our LLC. He also was a 50% owner as well and he was paid very well to send me clients.

    After a year or so he left his other job and came on full time in our LLC. In five years we went from making 500K per year to 10 mil this last year. At least 75% of our current work comes from his clients and he refuses to share any profits and makes sure that by the time all of his jobs are done he has spent all of the profit and paid himself hefty commissions.

    I spent 5 years building the company, we shared the losses but now he is not willing to share the profits. I arranged most if not all of the financing for loans for the company, I provided most, if not all of the office, infrastructure and support activities for the company and operations.

    He wants to take his clients and start a new company as opposed to buying out my shares / ownership of the LLC. I think the easiest thing to do is convince him to share in the profits and we can all still keep making money.

    My question is if I cannot get him to share the profits, does he have to buy me out?

    Thanks.

    • Don Todrin says:

      Bill Riley,
      I believe Yes is the answer he cannot convert or just take the assets of the LLC, the customers. He does not “own them” the LLC has a property right here. He would be taking company assets. Unless you previously agreed otherwise which you ma have done, and also depending how the operating agreement was written. A complicated mess we weave. Work i out with him a law suit would probably cost both of you the business and the profit will g down the drain.

  62. Mike says:

    Don,

    I am starting a pizza delivery business. I have a partner thats is going to put up 50% of the start up capital and I will put up the other 50%. My question is, since I will be providing the retail space (which I own),and I will be doing most of the work in the pizzaria, what would be a fair percentage split of the profits.?

    Thanks, Mike.

    • Don Todrin says:

      more for you less for him, even though you are both putting up 50% of the cash, I believe you are providing the space which is another form of investment, as well as doing the work. You should have controlling vote and more of the profit. How much more is hard to tell as I do not know how much you are investing and what the rent is worth but adding rent, your work effort and half the cash, you should be the majority partner.
      dt

  63. Mike says:

    total investment is $30,000, so $15,000 each and the rent would be worth around $800/month, im just looking for a fair percentage for both of us.

    thanks again.

  64. Pat says:

    Don,
    i am a PG student at the university of Edinburgh UK and i am doing some research for my dissertation on 50-50 partnerships and conflict/political problems and the average time these companies survive. my DOS is really interested in publishing my dissertation but at one condition… i have to find 100 companies with a 50-50 partnership. i have found this blog by chance and i decided to try to ask you for some help.. do you know some companies that could suite my dissertation?
    thankyou!!

    • Don Todrin says:

      Pat.
      I would like to help but my confidentiality commitment prevents me from revealing such details despite it being a good cause,

  65. Anton mossely says:

    Hello,

    I am in a partnership for a business specializing in web development and traditional marketing.

    We both go out and meet with potential clients, close deals, and provide customer service.

    I am the web developer and my partner is the traditional marketer. Currently around 80% of profits have come from web development which I have done all the work.

    How should we split profits if it turns out that services that I offer and deliver on is the only thing making us money, or at least most of it.

    I base a project cost based on how many hours it takes me to complete. Should we pay ourselves out based on those hours each individual does?

    • Don Todrin says:

      you both have two roles, one as an employee another as an owner. as an employee each can be paid based on performance or revenue or anyway you choose and here it can be different, the second way is when you split profit that should be equal if you are equal owners

  66. Ali says:

    I am starting a retail showroom. I have a dormant partner thats is going to put up 100% of the start up capital. I will run and manage the entire show on a working partner basis, as am not investing a single rupee in it. what is the criteria for fixing a share for such working partner.? im asking for a 50/50 split, as I am highly experienced with tremendous potential, and will be doing all of the work.

  67. Thomas Mann says:

    Starting a retail showroom in joint venture arrangement for which we need a start up capital of 56,000 U.S. dollars. Initially, I will run and manage the entire show on a working partner basis, and am investing 40% of the capital. He plans to join me in about 3-4years time. I am highly experienced with tremendous potential, and will be doing all of the core work and decision making. what is the criteria for fixing a share for such partner.?

    a) A 60/40 split initially, where i will be drawing 60% based on my experience in the field. Later, when he joins me a 50/50 share
    b) 40/60 split, where i will be drawing 40% and a fixed salary. Later, when he joins me a 50/50 share
    Or is there a third option out? Please advice

    • Don Todrin says:

      Thomas, there are unlimited options, you can design whatever works for you, however in view of the money and work effort coming from you and he is contributing what? I would skew it heavily in your direction…

  68. jamie says:

    i went into a construction company with an older vfriend i had invested 35000 and he 82000 i run the machinery fix and maintain and do all the work he looks after the books and has gotten are machine on at the company he works for .i get paid salary since i work full time march – dec lots of hours as far as him getting are machine on at his work thats his job as superviser to that company if its not are machine he would have to find someone else

    now besides my salary i have taken 10 000out of my equity yet he has taken 63,500 ….. to me this is not fair ashe is 65 % and i 35% money taken out not including my salary should be split 35-65 no?

    i have calculated tht he owes me 15000 out of his pocket or are company owes me 26000 to make the percentages equall would this be right

    thanks in advance <

    • Don Todrin says:

      Jamie,
      This is always a tough call, I believe you need to separate your investment return from your pay for work. You should get paid what your job is worth in the market and share profits based on your comparative investment. Although you both invested substantially so yes if you decided to split equally and consider the excess investment a loan and pay it back equalling the a risk money, you would have equal shares of ownership…..its creative and you can achieve any result you want.

  69. Jose says:

    Don – I am 50 percent owner of both profits and decision making in an LLC. We are going to a 60/40 structure. I will be getting 40 percent of both profit share and decision making. With my partner getting control could he decide to close doors and shut down the business with out my consent? Could I be forced out the business?

    • Don Todrin says:

      Jose, it is possible unless you require in the operating agreement unanimous vote for such actions, and if you have an employment contract in writing, then you are protected.

  70. Karthic says:

    Don, how do you feel about sweat equity?

    I entered into an LLC 50/50 without an operating agreement (I know, I know) where my partner footed the initial capital (50k) and I left my full-time job to bring my expertise in the exact role I was previously working as. After almost two years, the partner wants to restructure to 90/10 since I haven’t put in any money, which was never in the agreement. I left a 100k/year job and have been making less than 40k/year salary as we struggle to get this company going. Is my time indeed worthless? If we dissolved would he get everything?

    Karthic

    • Don Todrin says:

      Without a specific agreement to the contrary you are a 50% owner and will get half…I assume that within the operating agreement or tax returns you have been credited with 50% each thus that would be binding, or in the registration form where the split is stated, thus you are ok propbabl;y.

  71. Geannine says:

    Hi, I have just dissolved a 50/50 partnership agreement. My former partner is continuing with the business as she says it was her idea. I have put many months of hard work into developing this business from the inception. Neither of us have put any capital into the business as that was the next step to fulfill our one and only account we had signed up. I believe I’m entitled to a percentage of the profits for this account. I need to know how to proceed in order to make this happen or am I still entitled if I will not have put forth any capital? How do you put an amount to endless hours of work that was put forth? Am I owed a percentage?

    • Don Todrin says:

      Geanine,
      Maybe, you opened the comment by saying you discolved the partnership. If you did its over done fini nothing more to say your out and thats that. If you are in the process of doing it and have not yet dissolved it but are figuring out what and how to do it then yes you are entitled to half the profit and half the value of the assets and actually half the value of the partnership as a going concern not just the value of the profit from the one account.

      In reality it is a negotiation as it is difficult to evaluate what you have, however do not make the mistake of believing that your sweat equity your time in is worth anything it is not. The only thing of value is what you have built if it has any value at all. Given that you have one account and an active business presumably with cash flow and profit, one cold argue it is worth more then just te profit from the account but certainly it is worth at least that. There is a going concern value for a business and that takes into consideration all the components and the fact that together it wolks as a machine to make money and is worth more then the sum total of the parts.

      In a word, negotiate hard, get something, at least half the profit of the account but really your half is worth much more…. half the value f the business as a going concern, maybe 2-3times the profit.

  72. Jess says:

    Hi Don,

    I feel like an idiot because I started building up a company and asked a friend to come on board who said she would for an equal partnership. Her skills and support were worth it, or so I thought. However, now that she has signed the partnership agreement she has decided that I have to constantly ask her approval for EVERYTHING. I want to be fair and would love to buy her out but she won’t budge. We are still extremely new and haven’t actually incorporated yet. Can I get out of this without too much difficulty and keep my company or am I stuck? Also if I keep the agreement in place but get us set up as an LLC is it possible for me to list myself as the one who has the majority of the decision making process but still split the profits with her or do I actually need her consent on that now?

    • Don Todrin says:

      you have a problem and yes you can resolve this with an llc which grants you authority but splits profit 50/50 but you do need her consent. You ned to work this out with her unfortunately. you are in a 50/50 deal. what would happen if you simply went to her and said you wanted o dissolve the partnership and re-incorporate as an llc as described and that you simply will not continue as it is now. In other words threaten to blow up the business. It may ruin the relationship but save the business. Good luck.

  73. Steve says:

    Don, Appreciate your wisdom and insight on this blog and other postings!
    My senario. I am considering starting a pest/termite business with a highly qualified and 15 year veteran of the pest/termite business. I am putting up 100% of funding (approx. 30K), first 2 fleet vehicle (used), and provide an office at my home. Out of the 30K, I am proposing to guarantee his salary @ 6K for 3 months. (18K)
    He will be providing the license to operate (DCO), his expertise, most of the initial sales calls and service. Wew are both fairly adept at marketing and networking.
    I know this is limited info, but I would greatly appreciate any and all the advice/wisdom you can offer.
    Sincerely!

    • Don Todrin says:

      Cash is king, you get control of the company and a greater percentage of the profits, somewhere between 60/40 to 70/30 depending upon how you feel about it, He is getting a guaranteed salary and you are taking all the risk.
      Thats the way it works.

  74. Lars says:

    Don

    How are you? First and foremost I would like to congratulate you on the great job you are doing. Great stuff and I love you enthusiasm and character.

    I am as of now in deliberation with my partner of a newly started infant stage “INC”.

    It started as a 50-50 partnership, but as we have been developing
    the idea I had for this business we are now at a crossroad. I want to put 25k into the business to take it to the next level. My partner is willing to split this investment (12.5k each) for a total 50-50 in decision making as well. However, I now understand that 50-50 in control will never work because already we have major differences on how we want to approach the market. Any suggestions on how we could work this out if we go for this structure? (I would like to have the final say when it comes to how to attach the market..Everything else I would be willing to split power on)

    Also.
    My partner has agreed to a 51/49 split in control (50-50 in profit) if I put in the 25k. However my dilemma is that I think it is ridiculous that my partner would be getting 49% of potential millions in profit in the future without taking any financial risk whatsoever. He do bring a certain expertise and time to the table (not as much time as I put in , but still time) If we go for this deal, in you opinion, what is a fair percentage split if I put up all the initial capital?

    I would be humbled, If you could please give me some advice on this dilemma.

    Thank you so much.

    Sincerely,

    Lars

    • Don Todrin says:

      Lars, Thank you for your kind words, I appreciate it. I agree with your thinking. If you put in half and he puts in half and you control with 51% it works. If you put it all in, all $25,000 then you are taking all the risk and he should get 20%…More if you want to be generous but thats the appropriate split if its all your money.

  75. Alexandra Knott says:

    Hello,
    I’ve read all your comments and they’ve helped me with some of my concerns. However, I’d like your advice. I’m a very technical person with 10+ years in IT. I’ve recently came up with a great business idea that had nothing to do with my experience but with a fitness program; yet using my background to mix the both. I know the potential is great and I’m willing to put $ for the startup. I have a friend who works in the industry that’s very interested in my idea. Before we move forward, I want to make sure we both agree on the partnership terms. The question is; what would be the fair percentage share split? I know 50/50 doesn’t work. Especially where it was my idea! I expect we should both contribute financially based on our percentage; and split responsibilities. Would 60/40 or 70/30 be a fair deal? or should I be looking at less? I just feel I’ve been pushing her to meet me; brainstorm and always keep the ball rolling. Not sure if I’ll be comfortable with an even split. Your feedback would be so helpful!
    Thanks,
    A

    • Don Todrin says:

      The percentage of profit sharing is usually heavily determined by the cash invested, cash is king. However you can maintain decision making control separate from profit sharing in an LLC so you are not limited to flexibility. It sounds as if you are the lead person and this I would lean more towards the 70/30 in your favor if the money goes in in that proportion also, if your partner can contribute more you may want to adjust downwards, based on cash in….

  76. Dolmara Arias says:

    my fiance has a really good business. he owns a reastaurant. for two years I haven’t work but I spent all my time with him at the restaurant. I wanna have my own bussiness, so I feel more independent, we have a very good relationship. I found a place to rent and opening a nail salon roight across street of his restaurant so we can still be close. he is putting all the capital, but he don’t want nothing to do with the nail salon as decitions, however, he is telling me now to do a partnership 51/49, that wan’t the idea, I want him to invest and pay him back, the investment as we talk at the begining, the idea is for me to be independent like he told me, but this partnership does not feels like I will own a bussines right? I don’t have the nesecity of working, but if I am goona do it I wanna to be something mine. please give me your advice

    • Donald Todrin says:

      Dolmara, I agree with your position completely. Have a lawyer write up a noe for the amount of money he is lending you decide on what interest you should pay, I suggest 8% is fair and how long it will take you to pay it back and thats the deal. Maybe give yourself 6 months of no payment to get your business off the ground. This is the deal, don’t move from this position. If you choose not to go to a lawyer, then write the following agreement out on paper and have both of you sign it as follows.
      I Dolmara borrow from boyfriend $xzxzx at 8% interest to be paid back at the rate of $000.00 per month starting in 6 months until paid in full and then both of you sign it.

      That’s the deal.
      Good luck.

  77. Darlene says:

    I would appreciate your commenting onthe following. I have been in partnership with my brother for 42 years both our children came into the business and we want to hand over our shares to them my brother has 70% and I have 30%. mt nephew is insisting on a shot gun clause. Is this fair and advisable for a family business with a 70/30 split to use a shotgun? What mechanism do you suggest.

  78. Pam says:

    I own a 50/50 partnership s corp with another person, an outside source that has no holdings in our comopany is trying to set our salaries can they do this

    • Donald Todrin says:

      I do not understand how they can do this, but clearly you are correct only you and your partner have that right, responsibility and authority to set these standards.

  79. Francois Bess says:

    I was directed to your excellent article as I am in a similar situation with an individual who is very experienced in business. He has his MBA, 11 years business management experience, is 35 years old, has a family, and works for an insurance firm as a manager over business analysts.

    I, on the other hand, am 23, a college dropout, I founded the company, the idea is mine and I bring language skills in addition to the vision, paperwork, backend design. I don’t have technical prpgramming skills but I have the desire and tenacity to see this through. He wants to invest an amount (he hasn’t specified how much) and would like 50/50 equity and say.

    I would not like to lose control of my vision for monetary reasons. What do you suggest I do? I noticed you put your phone number out there. I would be interested in chatting over the phone. Do you charge for calls?

    I appreciate your time!

    Francois

    • Donald Todrin says:

      Francois,
      I do not charge for calls asking for an opinion. I will however tell you in advance that you should control your company with a east 51% of the decision making responsibility and authority. It is ok to split profits 50/50 if you want byt be the controlling voice. it is your idea and business and work effort.
      dt

  80. Felipe says:

    Hello Don,

    I would appreciate feedback on the following:
    A great friend of mine and myself are going to buy real estate property and it may be a 30/70 initial monetary split. If and when we decide to sell should any gains from the property be distributed as the initial investment or should it be 50/50 split? Any advice is greatly appreciated. Regards Felipe

    • Donald Todrin says:

      the fact that your partner has more money in than you and at risk, means he should be compensated for this. He should either get his money back along with you and then split 50.50 or let the money ride and split as per the investment. You can be as creative as you want, and split any way you choose but the money tends to control the deal.

  81. Mina says:

    Great post. I am currently faced with a dilemma. I have entered a 50.5/49.5 partnership with my sister. Our goals are totally aligned in that we want our business to succeed and be “life-altering.” I am working on this full-time while she has a very demanding and high-paying job. We will be a consumer goods company and the headquarters is in my city (she is at the opposite coast), and I am doing all the development, operations, hirings, etc. Because of this, she will be putting in about 30K more initially. Frankly, however, I can fund this myself and wanted her as a partner so that we can have a family business and also to take advantage of her skillset (which will be more handy as the company grows larger). She is insisting on supermajority on major decisions (buy-outs, hirings, etc.). This is where I draw the line, however. She is concerned that I might make overly quick decisions (as I admittedly am prone to do). Is there something we can write into our agreement that will ease her concern while preserving my decision-making rights?

    • Donald Todrin says:

      She makes a good point and super majority protects her position on major decisions, not a bad idea, however if you do not like it, do not agree to it, it is really that simple and maintain the right to control, however with her putting cash in, it is not unreasonable, if you want to out the cash in yourself, and then maintain decision making authority thats a ok, as she will have nothing to complain about or protect.

  82. Valerie Smith says:

    I’m currently in a partnership 50/50 on a piece of property & plan to open a business on this property. My business partner and I have decided to dissolve this partnership. Although all the paperwork shows 50/50 I have put in 45K and partner has put in 75K. My partner decided to do this as I was saying I couldn’t keep up with the cash he was putting into it but he wanted to keep contributing to get it the business off the ground. Now that we want to split, he says I have to pay him the additional 30K and for all the extra time he put in towards the business than I did. Can he charge me for that?

    • Donald Todrin says:

      Well, the controlling factor is the agreement, and hopefully the agreement said something abut how the investment is repaid before the 50/50 split is addressed, t should have addressed this factor given the disproportionate investment…Obviously it did not deal with this.Big mistake, a division of ASSES UPON LIQUIDATION SOULD HAVE SAID SOMETHING ABUT MONEY INVESTED AND THEN PAID BACK BEFORE THE 50/50 SPLIT OF PROFITS OCCURRED. Now you are left up to your own negotiation. Since the business never hapPened, the next question is what will you yield upon liquidATION? AND HOW WILL THAT BE DIVIDED, THE ANSWER SEEMS TO BE 50/50 BASED ON THE AGREEMENT.

  83. David says:

    I am currently negotiating a 51/49 partnership in a dental practice. I will be the younger 49% owner. My attorney is adament that this is not a partnership, and I have no protection, but merely am a minority owner. As the minority owner how do I keep from getting railroaded in all major decisions?

  84. brian tatman says:

    Hey Donald…first off I cant believe you have been running this thread helping folks since 2007. Thanks! I was wondering if an S Corp. has the same ability to have 50-50 profit split and 51/49 decision making split in our operating agreement. Does this only apply to LLC’s? Again Thanks!

    • Donald Todrin says:

      Brian, It is easiest and best done through an LLC. It can be accomplished in a s corp but only by creating a second category of stock.

  85. Otto Graf says:

    I had a 50-50 agreement with a partner on a retail business that we shut down before moving to a new location and starting a new LLC. An agreement was never written for the new location but with the understanding that we would have the same one and as we used the same accountant all paperwork and filing is done with a 50-50 split like before.

    Question: do we still need an agreement at all since we have been reporting for 3 years now with a 50-50 split? He put up the money mostly but I am operating the store. He doesn’t work in the store.
    If I sign a new agreement I will want to do a 51-49 decision split.

  86. Otto Graf says:

    Also: Is it correct that in an LLC one of the partner, the one putting the money, can offset 100% of the loss when the ownership is 50-50?

  87. Otto Graf says:

    Also: Is a 51-49 decision split as ironclad as a 51-49 ownership?

  88. I agree with you completely and would probably have gone even lower, however people have egos and must be satisfied. I would consider offering a valuable commission rate and then pay out half of it leaving half with you and thus he can buy in over time with his commissions…there are many ways of doing this but the bottom line is money talks, sweat equity has limited value in the face of a money investor, this simply the way it is.

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