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Wyoming Business Tips for Nov. 29-Dec. 5

November 24, 2015

A weekly look at Wyoming business questions from the Wyoming Small Business Development Center (WSBDC), part of WyomingEntrepreneur.Biz, a collection of business assistance programs at the University of Wyoming.

By Lisa daCosta, WSBDC business adviser

“My two friends and I started a business this year, and we all agreed to put in the same amount of money and time to be equal partners, but I ended up doing way more work and put in way more money than they did. How can I get a larger share of the company for my work?” Jerry, Afton

According to “Startup Dirty Laundry: Conflicts that Kill Partnerships” by Anna Vital (www.fundersandfounders.com), 62 percent of all startups fail due to co-founder conflicts, including the idea about the execution, who is doing the work and how much, and who is contributing money.

We found a number of articles on the Web addressing the question of ownership fairness, and most indicated that a 50/50 or equal share split is a bad place to start because it is unlikely or very rare that all founders will contribute meaningfully and equitably.

If you and your partners already have established an operating agreement that designated ownership percentages, you may have to revisit the document. Setting aside friendship and personal relationships for the moment, that conversation may likely breed resentment from the founding partners who are going to lose some of their interests in a rebalanced ownership.

If you start with the initial balances, and then adjust ownership interests for incremental contributions, for example, working on the business full time, without pay, or bringing in money -- your own or investors -- these factors can be used to create a more appropriate division of ownership. You also can pursue a vesting period for all founders in case life changes for one or more founders. If they leave early or do not commit the same amount of time, their share is diminished.

Most important, you should consider the importance of the team you have assembled. If reallocating means losing life-long friendships you value or key individuals who will be ultimately important in your success -- whether in sales or operations -- you need to consider what ownership interest you want to give to retain them, irrespective of contribution to date.

To learn more about equitable ownership splits, join our Business Fitness Webinar Thursday, Dec. 3, from 2-3 p.m. You can register for the event at www.wyen.biz/events/wyoming-entrepreneur-classes/perfect-equity-splits-startups/?eID=751.

A blog version of this article and an opportunity to post comments are available at http://wyen.biz/blog1/.

The WSBDC is a partnership of the U.S. Small Business Administration, the Wyoming Business Council and the University of Wyoming. To ask a question, call 1-800-348-5194, email wsbdc@uwyo.edu, or write 1000 E. University Ave., Dept. 3922, Laramie, WY, 82071-3922.


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