Are you planning to open a company with one more partner, where each partner will hold half the stake? This is one of the worst mistakes an entrepreneur can make when starting a partnership.
The reason is that a 50/50 partnership has no owner.
In other words, a limited liability company whose share capital is divided equally between two partners lacks defined control. Neither partner holds a majority, meaning that all decisions depend on consensus. When both partners are company directors (an extremely common case), virtually all decisions, from hiring and firing to paying or not paying expenses, depend, at least, on the absence of opposition from the second partner.
Consequences of Choosing a 50/50 Ownership
In times of disagreement, no one can decide the issue. This is the biggest obstacle to the continuity of the company’s activities.
This type of structure often creates friction between partners, as disagreements about preferences and beliefs are natural, which can lead to serious conflicts that may even lead to the removal of one of the directors.
The Importance of Defining a Controlling Partner
To avoid these impasses, it is extremely important to define a controlling partner when forming a company. This does not mean that the minority partner will be substantially harmed, either financially or in terms of their rights. That extra 1, 2, or 5% stake for one of the partners can be easily compensated by acquiring specific rights in a shareholders’ agreement.
Shareholders’ Agreement: An Effective Solution
The difference in company shares can be used as a bargaining chip for the minority partner to acquire decision-making power over certain areas of the company, such as commercial or financial, depending on their expertise.
In light of the above, it is important to emphasize that each company has its own peculiarities, as do each partner, and this must be taken into account when forming a company. Creating a set of rules that facilitates the management and long-term maintenance of the organization is essential.
Specialized Consulting
If you are considering starting a company or formalizing a shareholders’ agreement, please contact us. We offer specialized legal advice in corporate law to ensure that your company is incorporated effectively and securely.
