When two individuals want to start a company together, they often decide to split the shares into two equal parts. That scheme guarantees both shareholders equal rights in the company. But if the two individuals no longer share the same vision despite the application of best practices for that scheme, decisions can be blocked, at the expense of the company. I’m not going to give you more advice on how to make the 50/50 scheme work, but instead propose a solution to prevent you from having a really difficult separation in cases where there is no other solution.
Many resources on entrepreneurship will recommend that you avoid 50/50 splits and ensure that one of the two partners is the leader with at least 50% + 1 share. Sure it will solve the problem and it’s certainly what I would recommend myself, but for some people, it’s just not right. Lots of entrepreneurs are really serious about it and will consider inequality as something wrong that would damage their association right from the start. It has to be 50/50 or nothing.
Successful 50/50 partnerships are a truly amazing experience. Choosing the right partner is certainly the key to avoid painful separations, but even with lot of practice at selecting the right people to work with you, you will make mistakes. The worst case scenario must be discussed upfront and one of the ways to avoid difficult negotiations is to set the exit method by written contract. Both partners know exactly what will happen and accept it from the beginning.
The terms of the separation can be anything both parties agree to, but should always include mediation. Entrepreneurs tend to be impulsive and having some time to think is a good thing. Most conflicts can be solved by increasing communication and awareness. That’s why mediation must be tried first.
A partnership separation becomes complicated when both partners want to keep the company. This is typical in a conflict about strategy. Here is a two step method that solves that problem very easily and can be used even in partnerships involving multiple partners but having only two in conflict:
Let’s say you have partner A and partner B. Collaboration between the two is not possible anymore without affecting the company negatively.
- Partner A makes an offer to Partner B to buy his shares.
- Partner B has two (2) weeks to either:
- accept the offer and sell his shares to Partner A. (or)
- buy the shares of Partner A for the exact same price as his proposal.
The big advantage of this method is that it forces both partners to propose a fair amount the first time since there is no room for negotiation or counter proposal. In case both parties want to make the offer or don’t want to make it, try tossing a coin to see who goes first. Another advantage of this method is that it places a clear time limit on the situation.
The 50/50 split, when it has a strong significance for both partners, is the way to go, but every entrepreneur should be aware of the potential problems that can arise and plan accordingly.