2 reasons a partnership should address ownership percentages

When drafting a partnership agreement before starting a business, one critical detail to include is each partner’s ownership percentage. While some assume the split will be 50/50, relying on assumptions or informal agreements – such as a handshake deal – can lead to complications. It’s important to clearly define ownership percentages in writing.

Below are two key reasons why ownership percentages matter.

1. Decision-making power

A majority owner generally has the authority to make decisions without the consent of a minority owner. In cases where ownership is split 50/50, decisions require mutual agreement.

For example, suppose your business partner wants to source supplies from overseas, but you prefer domestic vendors. If your partner owns 51% or more of the business, they could make that decision unilaterally. However, if ownership is evenly shared, the two of you must agree. That extra 1% can significantly shift the balance of decision-making power. You have a larger say in the direction that the business takes. 

2. Selling the business

Ownership percentages also play a crucial role if you decide to sell the business. The percentage you own often determines how much you receive from the sale. Disputes over ownership percentages could complicate the sale process, potentially delaying the transaction or leaving one partner feeling like they did not receive the compensation they actually deserved.

Clearly defining ownership percentages is just one important aspect of a partnership agreement. Take the time to ensure your agreement is comprehensive and that you fully understand your legal options. If you and your partner are already in a dispute, then you must know what steps to take to resolve it.