Partnership and 50/50 split. How would you split this? What seems to be fair?

hitmeasap Level X⁵

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November 8, 2016, 1:55 pm

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Partnership and 50/50 split. How would you split this? What seems to be fair?

Freelancers,
I have a question for you and I would appreciate your answers, thoughts and your input on this. But before I ask you the question I'll have to explain the scenario.

In the real scenario we're talking about business online, but I'll use an offline store in this example as it's easier to describe this that way.

So, let's say you own a local shop. You will take orders and work at the counter. You handle all the orders and all the clients. You are person A. In the back, you'll have another person working. This is person B. Person A (you) will tell your partner (person B) what the orders is all about and person B will do the work. Person B doesn't pay rent or anything like that, so he literally just work and earns money meanwhile person A will have to handle all the orders, talk to customers and he's also the person who runs this business and he has established himself and the shop for years..

Without person A, person B wouldn't be able to work.. But without person B, person A wouldn't be able to earn money from that specific service or product.

How would you split the money?

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TommyCarey

TommyCarey

Doing a 50/50 split is never really a good idea because if the two owners have a falling out, they both own equal stock.

If you do a 49/51 split and the original owner has the 51% then that gives them control on the final answers to anything that is wanting to be done for the company. Usually this doesn't come into play because the original owner will listen to the secondary owner and what he/she has to day.

The 49/51 split will really only come into play if you made a mistake and your new business partner actually is not doing anything.

I've actually had a good business plan and I was an investor as well as a partner in the company. There were 4 of us so we split the company 4 ways evenly at 25/25/25/25 This was great because we all were doing equal amounts of work. One guy would be out there marketing to businesses and home owners to try and get them turned into clients. One guy focused on the business side and kept us all legal and stuff. Another guy focused on designs for our shirts, pants and shorts as well as talked to decision makers at corporations to see if we could get on their racks. And I focused on anything that related to the website and hosting.

After about 2 months we started seeing random charges on the business card. We figured out it was our friend who was the "CEO" and he was bringing out girls on dates to impress them. And I'm not talking about $75 dinners, he was dropping $250 to $450 at a time to buy these girls fancy sushi lol. He only had the title of CEO and he didn't have any real power over us because we all owned the same amount of stock. In all reality, me and my partner who invested were predominant holders because we controlled the money.

After we found out this was happening, we quickly dissolved the business and cut ties with the "CEO". Now with any business I go in to, I opt for the 51% because I know I'm going to be putting a ton of work in. If it's my idea then I'm definitely getting at least 51% lol.

1 8 years ago

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Lynne

Lynne

I like what Razzy said and when you talk about a 50/50 split does that only apply to earnings or does that apply to company ownership or decision making within the company?

I would say keep it your company and give the other person less of the profit share, maybe even make it 60/40 so you always make more. If the idea is yours, the company is yours, everything is yours and the other person is a worker bee then they get less. This is just the way of the world.

You also don't say who this other person is Andre. I really do feel it depends on the person. Some people will hear they are getting 50% so will sit on their ass and be sloppy and feel entitled. Then there a few people that would be grateful and be so happy to earn 50% that they will put 150% in. They will understand that the better job they do, the more return sales, the more money etc...

Does that make sense?

0 8 years ago

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EliteWriter

EliteWriter

If the original idea of setting up the company is that of Person A, and Person B is basically an employee from what I understood, then I would not go for a 50/50 split. Even though without the contributions of Person B's work the business cannot carry on, I still think that Person A seems to be mainly responsible for the business itself as well as its running and operations. I guess Person B could be replaced, to a certain extent, since he is basically following rules right? So I would either just set a wage for him, or split maybe 70/30.

0 8 years ago

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Lynne

Lynne

Yes that is what I understood here too. If someone is an employee they should earn commission on sales or something but not profit share and certainly not 50%. I agree that 70/30 or something like that would be better.

I can understand Andre is not so keen for a wage, people work much better when they have an incentive and also if there is not a lot of business coming in, like when the business first launches then you only have to pay the person according the income which is nice. No sales, then no expense.

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Barida

Barida

For me, before any partnership takes place, there is need to have written documents that determine how the profits will be shared. So, the issue of having to decide it later in the business does not come to play. It is hard to see a 50/50 profit sharing formula nowadays. Some of those in it earn higher for sure.

0 7 years ago

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Corzhens

Corzhens

Let me share this experience of my brother-in-law who put up a corporation with a partner. He got 60% and his partner 40% of the shares with their wives and children as stockholders too. The business was good and after a year, they were able to buy 2 service vehicles. After 5 years of the importation business, it is still good but the partner was having some dissatisfaction that my brother-in-law felt. Eventually, they had to close shop and divide the assets. But since my brother-in-law was the majority stockholder, he was able to continue the business. He couldn’t do that if they were 50-50 in ownership.

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