Your co-owner may be a spouse, sibling, friend or professional connection, but your partnership agreement will form the basis of your working relationship for the lifespan of your business.
Not only will determining ownership affect each owner’s personal finances, but it will also shape the way that your business grows over time. Keep in mind, however, that ownership and liability may not necessarily be the same; your attorney can provide further information about each topic.
#1: Each owner’s role
At the beginning of a business, many factors are uncertain. However, each co-owner should understand their purpose and how it relates to their stake in the company. You and your partner may choose to split ownership unequally according to responsibilities or capital contributions.
For example, two people form a limited partnership. One founder might offer financial support and input on major decisions while retaining a separate full-time job. The other founder plans to oversee the daily operations and manage a large portion of smaller business decisions. The two founders might agree to an uneven split: 30 percent for the investor and 70 percent for the operator.
#2: Potential for arguments
Splitting the ownership unevenly isn’t always the best choice, however. In some situations, an owner might feel as if they contribute more toward fostering the business, but they do not own a stake as high as the other owner.
Regardless of whether that owner’s claim is justified, the company may face a difficult period of internal arguments. As a result, both parties could lose a sizable portion of the company’s value due to tension and quarreling.
Business partners cannot foresee every point of conflict, but this factor is worth consideration. A business law attorney can help partners select a fair ownership plan that satisfies each party to the greatest extent possible.
#3: Documenting long-term plans in writing
Ownership may change as your company expands or encounters setbacks. Partners may enter or leave the business. Conflicts may be more likely to happen if the expectations are not clear from the start.
Therefore, the division of equity must be accurately recorded so that all owners understand what happens in new situations, such as when another investor receives a share. As you draft your agreement, a lawyer can offer guidance to help your partnership thrive with strong communication.