Business partners can run into conflicts over a wide variety of issues. Many of them are financial, such as how to split up revenue or how much each person needs to contribute to the business. There can also be conflicts over roles and responsibilities, long-term goals, creative decisions and much more.
When making a business partnership agreement, it is often wise for partners to address their ownership percentages. Defining this in advance can remove one of the main reasons for conflict. But why is the ownership percentage so important?
Making crucial decisions
To start with, the person who owns the majority of the business may be allowed to make important decisions on their own. These decisions could include hiring new employees, merging with another business, opening a second location and much more.
If one person owns 51% or more of the business, they may have the power to make these decisions themselves. But if ownership is split 50-50, then things often need to be put to a vote. This dramatically changes the power that each business partner has.
Selling the company
Ownership percentages are also crucial to determine because the company may eventually be sold to a third party. If the business partners had equity in the company and made money in the sale, they may need to divide it based on their ownership percentages. So both partners need to know precisely how much of the business they own and exactly what percentage of the sale price they should expect to receive.
It is helpful to set up official contracts and partnership agreements to address these types of issues in advance. But they can also lead to partnership disputes and conflicts, and business owners need to know what steps to take.
