Business Partnership Advisor

Together, we can fix your business and partnership problems

Chris Reich, Business Luminary

Be Careful About Changing Equity Positions in Your LLC

I get worried when a partner in an LLC tells me the other partners want to change the equity distribution. Read why…

Percentage of Ownership in an LLC is Important

Majority rules in an LLC unless your Partnership Agreement says otherwise. That means any changes in ownership affect voting power. If there are 2 partners who each have a 50% stake, decisions will be by agreement. Change that to 51%/49% and the 51% partner calls the shots unless there is a Partnership Agreement that species a different arrangement. You knew that so what’s the big deal?

Beware the Crafty Partner!

The affection between even the best of partners can erode over time. The 3 big items that cause chaffing between partners are:

  1. One works more hours than the other
  2. Money issues, especially over compensation related to item 1
  3. Differences of vision

If you identify any of these corrosive factors in your LLC Partnership, beware of any discussion around equity!

Beware of the Cheating Partner in Your LLC

If your partner in your LLC suddenly has a great new idea involving equity distribution, beware!

Chris Reich of Teach is Looking Out for Your Interests.

It Can Sneak Up on You

You might find your partner constantly bringing up the issue of working hours. He works more, therefore he deserves more. That may be perfectly acceptable  in some sense. You might not want to work every weekend while your partner likes nothing more than crunching spreadsheets and analyzing new opportunities.

You can, if appropriate, offer to permit your partner to take a greater salary in recognition of his hard work. Many members in LLCs are not aware of that possibility. It’s often incorrectly assumed that equal partners must take equal salaries from the business. That’s not true. Salaries can be allocated in any way agreeable to all partners. Be wary if a conversation about working hours bends toward changing the distribution of ownership.

Beware of Mr. Generous

Another place where trouble can start is when a partner says something about wanting to reward employees by giving them a small stake in the company. That sounds like a good idea and one that could motivate key employees. But where will the 2% stake come from? Likely that your partner has you in mind when he proses giving away a small stake in the company. Ask yourself this question: if there is a need for a major decision, will the employee(s) vote with you or your partner?

I would never want the employees to be in that position, clearly. But for the sake of argument, you can pretty well assume that your partner has already mentioned his deep desire to give a key employee the stake he deserves. Knowing those shares came by way of his action is going to handicap you in the future.

The bottom line to all this is that I always recommend keeping equity the same unless a partner wants to give up control for a sunstantial cash price. You see this in family businesses. Dad is slowly stepping back and the kids are gaining control. That’s perfectly acceptable. Just be wary if your partner proposes an ownership adjustment out of the blue. It could be a sign of trouble.

Chris Reich, TeachU 

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Image about succession planning showing father and son in business.

Succession Planning in Family Business

Let’s look at how to plan for the next generation of your family to run your business. It’s never too early to make a succession plan and the earlier you start, the more options you have.

You can get out of a business partnership if you planned ahead with a solid Partnership Agreement.

How to Escape Your Business Partnership

How do I get out of my partnership? And, it’s the biggest reason I am always ranting about having a Partnership Agreement. Without a Partnership Agreement, your options are very limited. You accept anything your partner is willing to give you, or you can dissolve the business.

Take the proper steps to protect the money you invest to start your new business partnership.

Don’t Risk the Money You Put Into Your Partnership

Somebody puts up money with someone who agrees to contribute labor as their contribution to an equal Partnership. Once things are set up, and a lot of money is spent, the other Partner fails to perform, and the troubles begin. I get 2-3 calls like this every week.

Your partner may take money from the business whenever they wish to do so. A Partnership Agreement could protect you.

Your Business Partner Keeps Taking Money from the Bank Account

Partners take advantage of partners every day and they get away with it. It is the most painful call I get. It sounds like this, “I put all the money I had into starting our business. My partner had bad credit and no money, but he promised to do all the work to get the business going.