The title of this article was “The Pros and Cons of the 50/50 Equity Partnership,” but the disadvantages far outweigh the advantages. When a partnership is formed, it addresses obvious concerns. How do the skills and experiences of each partner complement each other? How much does each partner contribute to starting a business? How long do they develop their business until they want to sell it? Is that so? …barely.
There is no doubt that the economic and industrial variables that affect the business will change once the business is started. Partners’ perceptions of where their business needs to go are also changing. There is always a decision about the combination of products and services. the decision to enter or leave another business area. Should we focus on a business model with more quantities, lower profit margins, or vice versa? What about moving to a more capital-intensive model? When a business is successful, potential investors, whether angel investors or venture capitalists, often sneak in. The two partners need to agree on an investment proposal.
If one of our partners acquires a business asset, it contributes to land, buildings, small data centers, a thousand servers or some kind of intellectual asset to further complicate matters. What is the value of the assets brought in by the partner when the business is sold? Who is supposed to rate it? It can be an insurmountable obstacle. Most buyers know that a single coin is worth less than its own value.
When selling a business, the financial position of each partner has undoubtedly changed since the start of the business. The consideration for a company can be cash, stock, or a combination of cash and stock. The tax implications of each of the three scenarios will vary from partner to partner. I often saw the process of selling a company engulfed in smoke because the partner did not agree to the proposed deal. They spent years building a business and then disagreed about when to sell, who to sell, and / or at what price to sell it.
Business is not all about one and everything is one, but the benefit of fairness. My suggestion. ship, captain.