More about structuring a 50-50 partnership… successfully

I have spoken earlier about the risks and dangers of  entering into a 50/50 partnership relationship and that entry has received a huge number of visits indicating its interest to my readers, thus I expand on the issue as follows, providing some strategies that can support such an arrangement.

While I previously counseled those contemplating such a relationship to avoid the pitfalls that naturally occur in a 50-50 split,  there are ways to design such an arrangement, if this even split is important, and still protect ones interests in various ways and prevent the natural pitfalls that will occur in such a relationship if one is not prepared.

Here are a few strategies that will work when confronted with such a proposition.

1. Using an LLC as an organizational format,  which I highly recommend, as it offers quite a bit of flexibility, you can allocate the beneficial interests in a different proportion then the ownership interest split. In other words you can have a 50-50 ownership split and split profits by another ratio, favoring the money investor or the managing partner or any partner,  you prefer.

This can also be changed quite easily and as frequently as desired. In all other organizational formats the beneficial interest parallels the financial interest and cannot be easily changed or changed at all, without changing the 50-50 ratio.

The distribution of losses can be allocated differently then the distribution of profits can also be changed at will.

2. One partner may be the managing director but the controlling vote for all management decisions can be held by the minority partner, or partners. This can be modified to apply to specific types of decisions to be decided by vote or held by the partners and decided by them without the manager voting at all  thus protecting a specific matter that one party wants to control.

The reverse is also true, we can design the power to vest in the managing director taking any decision making completely away from the members and giving it all to the managing director. Once again this can be changed easily and frequently, by those with the power to vote this type of change.

The answer is all in the design of the entity. Careful design can create an organizational format that satisfies everyone involved, even a 50-50 partnership can be controlled by these strategies successfully.

If this fails to satisfy some party to the deal, a proxy controlling ones right to vote can be transferred effectively changing the voting power.

Any result can be designed into the organizational format,  its a classic matter of form over function, or is it function over form. Take your pick.

I believe function over form is the way to go especially in designing unique organizations that satisfy the needs of the individuals investing and working the business. Take the time and ask for guidance, design the organization as required by your circumstances. Call for help 413-549-2966