The 50/50 Deal

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The 50/50 Deal

The 50/50 Deal

It is fairly common for excited young entrepreneurs to visit us at Seikaly, Stewart & Bennett, believing they have every reason to trust each other and will be making equal contributions to the business.  These partners often want the 50/50 deal with all profits, losses, and control being equally divided.  Although it is possible that all business contributions really are equal, it is more common that one partner is putting in more money, while the other has the great idea or the expertise to bring the business plan to fruition.

Our attorneys most often advise that although these sentiments are admirable, business partners should establish written agreements preventing deadlock. They should have buy-sell provisions that determine what will happen if they cannot agree and the business has to be dissolved. It is usually not enough to say that whoever is willing to pay more for the business has the right to buy it because one partner may have far more access to capital.

It is rare for business partners to avoid the business grinding to a halt in deadlock, unless agreements have been made in advance. Even if the original partners manage to avoid these problems indefinitely, problems are almost certain to arise if and when a new person steps into the shoes of one of the original partners. Perhaps it is a surviving spouse or a child who comes into the business, taking an assignment of ownership from his or her parent. At this point, wholly different personalities are involved and the potential for disaster is large.

Learn about this and other common business formation mistakes here and about common pitfalls of new business partnerships here.

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