For businesses that are jointly owned, such as a business partnership, it is very important to determine the exact ownership percentages held by each individual. These should be laid out in the partnership agreement.
This could be relatively simple. If two people own a business, they may both hold 50% ownership. But even when it is that straightforward, it is important to get this in writing and legally acknowledge those ownership percentages, rather than making any assumptions. This becomes especially important during any transactions.
The decision to sell
For one thing, ownership percentages sometimes influence who makes important decisions for the company. If both people have 50% ownership, one partner cannot simply decide to sell the business on their own. They would have to work with their business partner, and both would have to agree to the transaction up front.
That may also be true with minority owners, such as someone who only holds 10% of the business, but it will then depend on how their ownership was structured and how the partnership agreement was written.
Dividing the proceeds
After the business transaction takes place, the previous ownership percentages can also help to dictate how the proceeds should be split. This is similar to how business partners may split up earnings while they are running the company.
Ideally, all of these factors will be considered in advance so that each partner will know exactly how much money they should earn in the sale of the business before the transaction has even been completed. When one person believes they have not been given their fair share, it can lead to significant legal disputes.
Whether you are drafting a business partnership agreement, navigating a transaction or addressing one of these disputes, it is very important to understand exactly what legal steps to take.