Going into business with a partner can be a great way to split the costs associated with starting a new company and the workload involved. Unfortunately, a 50/50 partnership is not always the best idea since it can often be a recipe for disagreements.
Here I’ll explore what 50/50 business ownership entails, what to consider before getting into a business partnership, causes of business fallout, and ways to get out of 50/50 ownership without losing your benefits. Read on to learn more.
What does 50/50 business ownership entail?
A 50/50 business ownership is a business model where two or more business partners come together to form a business. The partners sign a contract that outlines rules about the general partnership, each partner’s responsibilities, and profit and loss sharing among the partners.
Under a 50/50 business ownership, each partner has an equal share in decision-making and a voice in managing the business. Partners also share any profit and loss generated from the business equally.
So if you sign a 50/50 business ownership, you and your partner will enter into a unique relationship. Neither you nor your partner can do anything without the consent of the other.
Causes of business partnership fallout?
Entering into a 50/50 business partnership is exciting for aspiring business owners. And while it would be great for all partners if the business succeeds, the reality is that most business partnerships split for avoidable reasons.
Before you sign that contract with your partner, here are a few reasons for business fallout you should consider to avoid disagreements and possible business split.
1. Unbalanced roles
A business partnership contract outlines the roles and responsibilities of each partner. Unfortunately, over time, one partner may start to feel that they are making more contributions to the running of the business. If that happens, what naturally comes next is an imbalance in time commitment, workload, authority, and responsibility. This imbalance may lead to endless conflicts and, eventually, a partnership dissolution.
2. Unmet expectations
In most cases, business partners have the same end goal before entering into a partnership agreement. The excitement of launching a new business may start to take over over time, making each business partner start having their own expectations. Misaligned end goals may lead to partners’ dissolution.
3. Disagreements over finances
Another reason for a business partnership fallout is the mismanagement of money by one partner. Besides mismanagement, disagreements on how the business will receive, control, invest, or spend funds generated from profits can lead to partners’ falling out.
4. Differing values
Business partners are human beings, so they will likely make decisions based on their values. For instance, one business partner may value spending the profits generated on marketing while the other may consider saving costs to improve profits. The ultimate goal is to grow the business, but how both partners see different things may lead to disagreements and, finally, a business fallout.
Factors to consider before the 50/50 partnership split?
Some of the factors you consider before splitting with your partner include:
- What the initial business partnership contract says.
- The number of partnership assets the business has accumulated.
- The amount of money your partner owes you.
- Outstanding taxes or other debts.
How to dissolve a partnership
The first step in dissolving a partnership is to initiate a conversation with your partner. If you reach an agreement to part ways, there are two ways to do this:
1. Dissolving a partnership without an agreement deed:
You will need to negotiate all terms of the separation if you are dissolving a partnership without an agreement deed. If you can’t agree with your partner when dissolving a partnership without an agreement deed, the terms of dissolution will be based on the dissolution act of the state the business was operating.
2. Dissolving a partnership with an agreement deed
The partnership contract is likely to dictate most of the terms of business dissolution. However, it is still a good idea to negotiate a separation dissolution agreement outlining how obligations will be paid and how assets accumulated will be delivered. A separation agreement will include things such as:
- Type partnership assets you may be entitled to,
- How much money your partner owes you, and how and when will you be paid,
- When and how will your name will be removed from the assets, contracts, leases, etc
- Who will be responsible for outstanding taxes or other debts,
- How the separate agreement will be enforced,
- Termination of bank arrangements,
- Who will own any intellectual property (IP) rights,
Ways to handle partnership disputes?
Below are three proven strategies that can help minimize and resolve disputes arising from a business partnership:
- Formulate a partnership agreement with help from a business mediator.
- Set aside time to discuss any dispute that may arise from the business, and make sure you focus on problem-solving when sitting down with your partner.
- Hire a professional business partnership mediator to help you resolve any dispute emanating from the business.
Can one partner dissolve a partnership?
While it is legally possible to dissolve a business partnership, one partner cannot dissolve a partnership on his own. The law dictates that all partners agree to do so and draft mutually acceptable terms of separation.
When it comes to ending a partnership, many emotions are often involved. This can be especially true if the partnership has been going on for a long time. Conversating about ending the partnership can be difficult, but you must do it.
