There is in a business world in which everyone tries to avoid – it is called a 50/50 partnership agreement. And when you research about it on the internet, you will find that the articles about it is more about how to avoid it than saying something about it. And this may be what this article is all about – about why a 50/50 is not a good idea for a business. But before going into that, let us try to understand first, what 50/50 partnership agreement is all about. After all, this is a kind of business, and maybe not everything about it is really bad after all. In fact, there many companies that do as such, as you will find out below.
What is a 50/50 partnership agreement?
Like in all forms of agreement, a 50/50 partnership is a contract documentation for two (or more) parties. Under this contract, parties will get the same amount of share, as well as losses.
Name of the partnership. The moment you decide to make an agreement, your probably be thinking what name you should be using for your business. The most common technique is to use both of your last names, such as Abercombie and Fitch, Bausch and Lomb, Bang and Olufsen, or Smith and Wesson. All these are last names of two individuals. There is one in the form of a last name and Co or Sons combination, such as Levi’s and Co, Bass and Co, or Steinway and Sons. Or you could use your first letters such as A and M Records, B&H Photo and Video, C&A, or DHL Express.
Contributions to the partnership. Because this is business and it involves money and some properties to run, it is important to define how much is required for each party to contribute, to share, to deposit. Part of this will be for the capital, and part will for maintenance, etc. This includes the question, who contributes what. Who will put up the building, who will prepare the items to be sold.
Allocation of profits, losses, and draws. This is a 50/50 partnership agreement. But you need to set the terms how much you you will earn, how much goes to what, and where. Is there an allocation for maintenance? Is there an allocation for something else. How much each should be paying when there is a loss of earning?
Partners’ authority. Remember, there are two people involved in the team. Is there a need for one to seek permission to do something? Or can one make a purchase without meeting the other partner.
Partnership decision making. How much decision making is involved? Who handles the employee? Who handles the salary? Who decides what? This should be included in the terms of partnership.
Management duties. There should be guidelines in running the business. For example, one will head one department, and the other will head another.
Admitting new partners. As your business grows, you will somehow realize the need for another partner. The necessity of a new partner is inevitable if you are too ambitious with your plans. But right before the start, you should have already made a decision if admitting new partners is part of your business.
Withdrawal or death of a partner. What if in case someone dies? Is there some guidelines on how a case such as this will be handled?
Resolving disputes. There may be cases when you are in a dispute. The worst case scenario is going to a court and ending with a company being dissolved. But there may be other ways to solve as such. And that is up to you to decide. Would you need another party to intervene in cases where in you need to solve arguments, issues, disputes?
Two heads are better than one, they say. And that applies to any form of business. But a 50/50 partnership is not just about one seeking advice from another person, as the saying “two heads are better than one” explains. A 50/50 partnership is a team up of two (or more) individuals. It is a compact of two persons becoming one, almost the same idea as marriage. But of course, that is a very different thing. But there is a great advantage when you team up with someone else. And the obvious reason is, you can not stand alone for the business if you just do it by yourself.
With a 50/50 partnership, the things which you may lack, needed, may be provided for by your partner. That is the essence of a partnership. In short, one completes the other one. For example, you have the wealth but you do not have the skills. The thing that you can do is seek for a partner who has some skills, but may not have the wealth needed for a business capital. And the opposite scenario goes to the other partner.
But even if you have both wealth and the skills, you can always go 50/50 partnership for some other reasons. And this is what other are doing. Enter into a partnership just for the fact that it is less hassle being alone running the business.
Override Make sure there is an over ride on everything such that when one partner gets out of control, there is always someone who can take in charge, who can take the lead.
Quick Dispute-resolution System. When there is a dispute, what are your terms to settle it. Do you always have to go to court? Or do you sit for a moment and talk about it, with intention to come up with a good outcome? Or do you fight till death?
Third Minor Party. A 50/50 partnership sounds strict to a two person policy. But if you want to have a successful relationship. look for someone who can intervene in you both. If all else fails, there is someone who can assume as a buffer. He may not be a full pledged member, or not part in the partnership, but he is always ready in case if something happens, just to smooth things out.
Documentation. Always put all terms in paper, as much as possible. Usually issues come out because of miscommunication. When things get out of hand, your best friend is rules, regulations.
Vesting Ownership Vesting is used in company to set terms in ownership. The technique is a way to grant individuals a graduated ownership of a company.
Is 50/50 partnership, a 50/50 partnership?
The problem with a 50/50 partnership is that, while it may appear as balanced, it is not. It is just 50/50 in the face, but actually, in the real world, you really can’t split a task for two persons. For example, if there are two of you pushing a cart, how much energy each of you are you spending, is it really a 50/50 or a 49/51? We really do not know.
How much do you really have to share? This is another angle that you need to look into. Ok, it is clear that you will share, but exactly how much.
Confusion on the Side of the Employees
One problem with a 50/50 business is that it may create a confusion among the employees. Who should they be loyal to? Under whose command should they listen to? And for the employees, the term 50/50 does not exist in their dictionary, same with a corporation or with LLC. Employees do not really care much about the structure of a business company. But they do need to be conscious as to who is leading the company. Why, because that will affect as to how they would relate with their superiors.
This is a typical problem with a partnership, a deadlock. This is never possible with a solely owned business. But with a 50/50 partnership, this is very common because, one thinks that his idea is best, and the other thinks the same. This happens when no one gives up, when everyone thinks his is the best.
Update, Update, Update
Because there are two heads running the show, there is a need to keep an update, a constant update. It is like a cellphone in which a software needs to update, because the applications have been updated. To keep the equilibrium going on, an update of both parties is needed.
Maybe you have decided on to something today, and you have made an agreement with ease and convenience. But people change, and that is one thing you need to be anxious about. And that is why you always need to update on something, about just everything.
If an institution had to face problems for just one person, how much more if there are two head? The problem is multiplied. But unless you can take advantage of a multiple ownership, then, it only invites another problem.
It is not 100/100 for two persons, it is only 50/50, which means, the two partners are not giving their whole self. That itself is a big concern.If you can not give your whole self to something, to your business, then you are not giving the best of it. And if you keep on relying on your partner to pour out for the best of your business, then something needs to be done.
There are many reasons why a 50/50 partnership is problematic. And as mentioned, many experts do not really encourage such practice for practical reasons.
Almost everyone says bad things about a 50/50 partnership. But it is not really bad at all. It is not bad if you model from a marriage standpoint. And so what are the traits of a good marriage?
Ownership: Taking Responsibility. It is owning problems, responsibilities, taking charge of anything, raising kids, cooking food washing dishes, fixing tables, everything that is needed to sustain marriage.
Hope: Believing that Good Ultimately Triumphs. There is a good chance that a couple may believe in hope because usually they are bonded religiously, and not just for whatever reasons, otherwise it is just called partnership.
Empathy: Walking in your Spouse’s Shoes. When you marry, you will consider your wife as yourself, that is you love her just as you love yourself. You take care of her just as you take care of yourself. When you eat, you also thing whether your husband has eaten something. You feel your partner when he or she is hungry.
Forgiveness: Healing the Wounds. There is forgiveness. You do not let a day pass without asking forgiveness, or forgiving your partner.
Commitment: Loving for Life. You love your partner not because he has an investment, but because he or she is worth loving.
But then again, the 50/50 partnership that we are talking about here is business. it is all about profit. And marriage has nothing to do with profit, in fact marriage is everything that business is not. Marriage is about self giving, it is about sacrifice without expecting returns. Business on the other hand, is also sacrifice, but with returns, you expect a lot of returns, we call it profit. Business is in the verge of selfishness, marriage is not. And so, it really is difficult to achieve a successful business in a 50/50 partnership. You have a good chance you will be successful in marriage, but not in a 50/50 partnership. it is difficult to use marriage as a pattern for 50/50 partnership. But you can use a lot of marriage traits for your 50/50 partnership to make it successful. They are two different things, but you can always use it as a model.