The Drawbacks of a 50/50 Equity Business Partnership

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Photo by Cytonn Photography on Unsplash

Businesses exist, in many ways and with differing pursuits. But all businesses have to have sustainable finances. As it is, cash flow is paramount in the world of business. Sometimes, in order to share the risks people resort to getting into partnerships.

 However, without a clear understanding of the risks involved in choosing a 50/50 arrangement, many aspiring entrepreneurs are doomed to repeat history.

There’s no denying the fact that initially, co-founders strive to address the obvious concerns for any successful partnership. These include the issues of how partners will complement each other in terms of experiences, finances and plans.

Look at it this way, this sort of partnership has been likened to a marriage. In this relationship all decisions must be made collaboratively. Any sane person knows that in actual marriages this continue to be the cause of strife and frustration. Likewise, in business it is not always possible to effectively make decisions collaboratively.

50/50 business relationships can become very problematic and frustrating to both partners. This is because of differing worldviews. People don’t always see eye-to-eye, and when that happens within the 50/50 business partnership, tensions are inevitable.

For instance, one individual can see something as an opportunity not to be missed while for the other that maybe an unnecessary risk.  Although the idea of a 50/50 equity business partnership may have its advantages, careful thought must precede any decision to join one.

A typical case of when things can go south happens almost daily. For example, when it’s time to sell the company, the financial situation of each partner has no doubt changed since the company was founded. 

The consideration for the company could be all cash, all stock or a combination of cash and stock. The tax implications of each of the three scenarios are different for each partner.  I have seen the process of divesting a company goes up in smoke too many times because the partners didn’t agree on the proposed deal.  They spent years growing the business then totally disagree about when to sell, who to sell to, and/or how much to sell it for.   

In conclusion, it is a smart investment to consider the issues of control when thinking of this business arrangement. One has got to look beyond the romantic pictures of what partnership can bring and consider the larger picture.

In business, the issues of what contracts to sign, which people to bring onboard, which suppliers to opt for will arise, no doubt, which may bring with them tough decisions to make, especially those that will satisfy both partners.

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Teboho is a Social Worker, Writer and Inspirational Speaker. He is in pursuit of MSc. in Managerial Psychology. Graduates are able to apply psychological principles and methods to tackle challenges in the work environment and provide effective practical solutions. Acting as industrial-organizational psychologists.