Is 50/50 partnership in an LLC a good idea when partner has idea and money?
I have seen similar questions, but am curious if this seems like a fair arrangement.
Partner and I have already started a 50/50 split LLC.
Myself: Technical vision, skills, no capital investment expected from me.
Parter: Idea Guy, funding 100% (albeit relatively low startup cost and low maintenance), manage legal aspects, marketing, book keeping, etc...
To be frankly honest I don't really anticipate it being that successful, it may make a modest profit, however my motiviation for this is because the project is technically intriguing to me and I would like to have Co-Founder on my resume. If I were expected to put up any capital then I wouldn't have agreed to do this.
At first it seemed fair, but then I started thinking about how critically flawed the idea is and how little it would actually cost to get it started.
Do you feel a 50/50 partnership is fair in this situation?
Ideas LLC Partnerships Non Technical
4 Answers
This is usually not a good idea. If something ever happens and a decision needs to be made in your company, but the two partners don't agree on one, then no decision is made. Some decisions may be life or death for a company. I would not go into this with 50/50. If you don't want to go 49/51, you could invite somebody to hold 2% and you two get 49% each. In case a decision needs to made, the third person with 2% will ultimately decide (so, pick the third person wisely - who is independent and experienced).
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+1 I like this idea a lot. They stand to earn almost nothing but still hold an important tie breaking vote. They ideally should be doing something at least minimal to have this stake at all, and shouldn't have a close relationship with either of us. We have been talking about hiring a graphic artist to do the logo and web page themes. Perhaps we can offer a lower price + 2% stake? – Maple Shaft 12 years ago
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2% is just an example. I am sure you can pick any % that works for you. – Vasiliy 12 years ago
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This is ridiculously incorrect. A decision is made by the managing member/partner, not by a democratic vote. The stakes are irrelevant, what's important is the operating agreement, that sets the procedures for the decision making, and is a **MUST**. – Littleadv 12 years ago
Your arrangement is pretty typical and 50/50 seems ideal.
It's probably not worth being that concerned about. Since you are not sold on the idea or don't seem to have your whole heart into it I wouldn't expect you would deserve more shares ;) even if the idea doesn't require a lot of funding. Generally people under estimate marketing dollars and you'll probably need that to make a push into the market.
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That is true, I forgot how expensive Google AdWords can be. Good point. – Maple Shaft 12 years ago
50/50 in my experience does not work. Usually an arrangement where a tech savvy partner and someone with funding (angel investor) come together is where this occurs. Inevitably the partner that puts in money will want a larger percentage so they can control the company as they "know how to make it successful". The truth in my opinion, without a definite goal in mind and without putting everything that you have into something and being passionate about it is going to fail. The vision for the business usually comes from the creative partner. Without that vision the business will fail. Don't let someone put in money and try to control the company. If they want control or will not agree to 49% or less don't do it...
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Thanks for the input! Since this question was posted things have been relatively smooth and I am more actively interested in the project than ever before. We have had several sit downs since then and have never made a split decision yet. If he is all about control then he hasn't shown this aspect yet. He seems to realize I am more creative than he is and welcomes my ideas and input. He told me that the last thing he wants is to get in the way of my process and the way I do things. Hopefully things stay smooth but if it starts making money then you know how money can poison things. – Maple Shaft 12 years ago
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See my comment to Vasily. – Littleadv 12 years ago
50/50 may not be a good idea because it always results in a tie when you don't agree. It can lead to what we have down in Congress - nothing gets done. I would avoid this in the future.
