It is very common, that two friends rush into starting a business and set the partnership to be 50:50. This halves the financial duty, managing responsibility and general commitment. Is this, however, what both had in mind? Let’s take a closer look at the joys and worries of an equal partnership.

Making decisions

I am instantly reminded of an excerpt from the movie “Matti” – a biography of the Finnish ski-jumping legend Matti Nykänen – his managers offer was to do business “sixty-fifty”. I must admit, this business of theirs did not do so well.

So why is a 50:50 share bad? When facing complicated decisions, you might get stuck, where one is for and the other against the decision, leading to an unsolved situation and a problem that subtly remains. Trouble often comes from one side being more committed than the other. Most of these problems stem from the human character, actually. But is there a way to foresee these problems, maybe even avoid them?

Who could come and help solve the fight?

On way is to agree on a person to confide in – someone to bring justice, when a middle ground cannot be found. This is usually someone both sides hold in high regard and has an experience in entrepreneurship. I find this a very good solution.

For servicing the needs of larger businesses, a system parallel to the courts exists, called Court of Arbitration – this allows matters to be solved quicker and without further contest. So finding a trustee right in the beginning of your business is a conscious way of avoiding sharp problems.

Sharing costs in a business

Sometimes shareholders fight over costs in the business. For instance a simple phone bill – “how could he chat so much on the phone? I am way more frugal” This is a conflict you could avoid.

If you are in the sales business or offer a service where the result depends on both partners’ input time then one way to solve this is gather profits through a shared company and costs belong to the partners’ private businesses. You could even go so far as to have the shared company owned by two separate legal bodies, each respectively owned by a separate partner.

A separate company for personal sales costs

What does this pattern give you? An extra keeping of books, for one. But also, when you have agreed on overhead costs, it gives you the opportunity to agree that a sales or service associated cost (sales cost being the direct costs for providing a service, the trip to your customer for instance) is undisputable. They are simply incurred by each partner respectively.

This instantly means no fighting over a cellphone, laptop, car lease etc. This way you can make your own decisions and be liable for them yourself. I have applied this method for years.  The shared company never gets costs like my phone bill, car expenses, computer associated costs and trainings or seminars.

Trainings come at very different rates and in my life the knowledge is usually used in multiple companies. Why fight over something like this? Spare time and nerve endings – separate your costs but fight back to back and use your time for some good hard work.

A different share percentage

Can you share a company with another ratio? Of course! Fighting over a share percentage on a company is quite useless. Rather own less than half in a company that makes profit than own more than half in one that makes none or is inactive.

If your share ration is 51:49 for example, then in some cases you can note in the shareholders’ contract that the owner of the majority (the one with 51%) gets +1 votes. Then there will be no disputes, but this is also not agreeing on something.

The purpose of business is to make profit

It is important to understand that the only reason to be a shareholder (the only one that can be taken seriously) is to make profit as an owner. To hold your head high, knowing that you’re a shareholder, but not taking dividends or having the funds to withdraw them seems foolish to me.

Sharing in the responsibility to provide capital

Being a shareholder is very commonly bound to investing capital in the company. Having a share in the company means holding the responsibility of investing capital when the baby company needs it.

Equal commitment and contribution

Through time there have been many very successful two-man-companies. Actually when it comes to startups, investors often expect this type of relationship. It is expected that young entrepreneurs commit equally and wholly, because one thing is to look at numbers and forecasts, another is to see potential in a team.

I hope to have given you some new ideas and more confidence in starting your business. Creating a company can’t be a large dream, a legal body can be created in a mere 30 minutes. The process of business, however, can be an excellent education that not even the best business schools cannot provide alone.

Tell me, are you in business with your friend and how have you gone over your mishaps? What kind of problems have you faced?