Pros and Cons of 50/50 Equity split vs 51/49 Equity split

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November 23, 2020

by a searcher in Tampa, FL, USA

Currently looking at a deal where there will only be one other equity partner besides myself and I am trying to get more perspective on the Pros and Cons of setting up the Equity on a 50/50 vs 51/49 split.

Of course, we both get along very well and hope for that to continue in the future but am caught wondering is 50/50 almost meaningless as opposed to 51/49 or is it all how you set up/lay out the behind-the-scenes in the operating agreement.


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Reply by a searcher
from University of Pennsylvania in Philadelphia, PA, USA
I'm sure a lawyer will have better perspective on this, but I'd be very nervous about being a 49% shareholder in a company held by 2 people all things being equal. Minority shareholder protections are somewhat limited in closely held companies. With respect to control, there is not much difference between 49% and 1% in a company with two shareholders. I'd be much more comfortable at 50/50 because you basically both need to agree to more forward with a decision. Again, definitely would defer to a lawyer for final advice.
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Reply by a searcher
from University of Virginia in Charlottesville, VA, USA
One thought is one of you to have more common stock and the other more preferred stock . This would offer some alignment for incentives because the partner with higher common stock could only receive a payout after the preferred stock was paid a dividend.
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