5 Things You Must Do When Entering Into a 50/50 Partnership
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A 50/50 partnership is like marriage: One partner can’t do something without the consent of the other. Because of this arrangement, trust is the most important factor to make this business partnership work -- without it, the rise of conflict is only a matter of time.
Before signing the shareholder’s agreement, your partner and you must understand each other’s goals in terms of dilution, salary, exit and commitment. Any discrepancies here could result in very high levels of stress and an increase in the probability of failure.
So before you dive into a business partnership, here are five tips to avoid conflict. Here are five tips to avoid conflict in a 50/50 partnership
1. Ensure everyone has access to all company property. While partners may oversee certain tasks, it is imperative that founders are able to gain access to all company property. These are corporate assets that belong to the company not the shareholders.
Related: How to Find the Perfect Co-Founder
For example, if your company is focused on software, it is vital that the business' source code is hosted on GitHub or a similar cloud service. This way if a co-founder gets angered or decides to jump ship, the other founders aren't left in the dark.
2. Implement a quick dispute-resolution process. Legal disputes are incredibly expensive and in the world of startups, a lot of cash isn't always available. Therefore when a dispute arises, resources used to solve conflicts should be minimal to lessen the impact on the business. Agreeing to quick and inexpensive processes will save both parties a lot of time, money and stress. One great approach is mediation. If all else fails, a walkaway provision with a waiver could allow the parties to move on without being bound to the original shareholder’s agreement.
Related: Avoid These 7 Partnership Killers
3. Have a minority shareholder. The problem with a true 50/50 partnership is that if both partners cannot agree deadlock is inevitable.
Giving someone a small stake in the company -- a person both partners’ can agree upon -- can help smooth things out while also providing guidance and reasoning.
4. Set realistic salary expectations. One of the hardest conversations to have with potentials investors is how much you want to get paid. It can definitely be a deal breaker and without a firm understanding of you and your partner’s salary needs, conflict is a sure bet. That said, each founder needs to set realistic salary expectations and the other person needs to be okay wtith these requirements. For instance, it may be unrealistic to ask someone much older than you to live off a ramen noodles and red bull diet.
5. Create vesting schedules. Each partner should agree to a vesting schedule when equity is on the table. Vesting schedules -- a strategy where people don't receive options in full, rather in increments -- prevents a partner from walking away and still owning half of a company. A four-year vesting schedule is the standard.