I’m curious to the possible negative outcomes to creating a partnership between one other person and giving him a 65 ownership while I get 35

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I’m curious to the possible negative outcomes to creating a partnership between one other person and giving him a 65 ownership while I get 35

I’m starting an online company in relation to the
video game industry. My partner won’t go lower
then 65 ownership. I want it to be 50/50, but I
think working with him is a good idea for the
company. What is the downside to accepting
these terms ? The company intentity is an LLC.

Asked on July 10, 2016 under Business Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

Here's the downside: he will control the company as majority owner. If you set up an LLC (not corporation), you can mitigate or reduce his level of control with a properly draft operating agreement that protects your interests, but as majority owner, he will still be able to exercise unilteral power that you cannot, and the default (in the absence of a properly drafted operating agreement) is that he will have complete and sole control over the business: can decide to sell it, to close it down, to take it in a direction you don't want, to license its technology or intellectual property out or pay for licenses in, control the finances, etc. You will not be partners: he will be your boss. 
I have seen (and been part of) a number of unequal-ownership 2 or 3 person companies, and in all cases, the majority owner controls the company. If you don't want to not have a say in your own business, don't do this.


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