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    2 Replies Latest reply on Mar 30, 2010 7:48 AM by Uncle Leon

    Should partners share a 50-50 split in shares?

    endlsblessing Newbie

       

      Recently my partner and I bought out a 3rd partner. This partner's shares are being divided between the two of us. My partner wants to have the shares split so that he is the primary share holder. He initially put in money into the company and at that time there were 4 partners. I was not able to financially support the business in the early days but I have more than made up for that by bringing in more that $10 million dollars of contracts into our company. I have contibuted much more "sweat equity" than my partner and feel that a 50-50 split is the only fair way to distribute shares so that both partners have equal amount of decision making power. Is there any advantage to one partner having more shares than the other or can we be successful with both partners having an equal distribution of shares?
        • Re: Should partners share a 50-50 split in shares?
          bpfinance Adventurer
          How is your business set up? Partnership, LLC, Corporation, LP, LLP, LLLP? What industry are you in? Generally, there is no benefit to the minority shareholder in a partnership. Obviously, having a 50-50 split has the potential to create some arguments when a corporate decision has to be made. With a majority shareholder (and only a majority required in the partnership agreement) all corporate decisions are made by that shareholder. One benefit I could possibly see to a minority shareholder is where the partnership decided to do something unethical and was sued, the minority shareholder may be able to claim that you didn't want the partnership to move in that direction and you may be able to have your name removed from the lawsuit. However, I am not a lawyer, and that is just pure speculation from a business point of view.

          Let me know if you have any more questions.
          forumresponse@BrienPrivateFinance.com

          Jeremy Barfield
          Chief Forum Response Correspondent
          http://www.BrienPrivateFinance.com
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          • Re: Should partners share a 50-50 split in shares?
            Uncle Leon Tracker
            First of all, I agree with BP that SOMEONE needs to be the tie-breaking vote. But, also, I think you may not have the ideal set-up to account for "Sweat Equity".

            The "Sweat Equity" situation can be accounted for by each owner who works in the business receiving salaries and/or commissions and/or bonuses (just like any other officer or employee) as payment for their contribution to the success of the business. Stock options could be part of those earnings.

            Sometimes a very successful business can be screwed up by the "little green monster" of one's mind telling them that they aren't getting a fair shake. This should be addressed, of course. But it's unwise to kill the goose that lays the golden eggs, if everything else is going well.

            The majority stockholder can go a long way to prevent conflicts such as this this by showing the minority stockholder more respect than his stock holdings require....especially in front of other employees.
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