Ownership percentages should be clearly laid out in a partnership agreement. They can be stated along with details like how profits should be split, how much investment is necessary, what roles each partner will have within the business, and much more.
This is often a step that business partners are tempted to skip. They may just rely on a handshake agreement, where they both assume that they own 50% of the business. After all, they may be friends who knew each other before they launched the business, so there is some level of inherent trust.
While it is good to have trust in a business relationship, it is still important to get everything into a partnership agreement and an official contract. Below are two reasons why ownership percentages are so important.
1. Making key decisions can become complicated without guidelines
While the business partners are working together, they need to make numerous decisions. These could be creative decisions, financial decisions or decisions about personnel and hiring new employees. Business partners with equal ownership shares should both have a say in these decisions, while unequal ownership percentages may mean that the majority owner can make decisions independently.
2. Selling the business can lead to litigation without clear ownership percentages
Furthermore, the business partnership may not last forever. Eventually, they may decide to sell the business and go their separate ways. When splitting up the proceeds from that sale, ownership percentages become very important because they help to define how much each person is entitled to.
Drafting an official partnership agreement is a crucial step to take, and it can help to work with an experienced attorney at this time.
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