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Use Your Business Plan to Get Ownership in Writing

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Use Your Business Plan to Get Ownership in Writing

By Tim Berry, Guest Blogger
Published: August 26, 2014 Updated: August 26, 2014

Way too often, you can add up the percent of ownership in the heads of the partners and discover between them they think they own 200% of the company. That’s because one thinks the idea was worth 50% or more of the ownership, the other thinks the day-to-day work was worth 50% or more of the ownership, and another thinks having written checks and invested was worth 50% or more of the ownership.

What I particularly hate in this context is when people spend the time and do the work and develop the business without spelling these things out, and then, when it’s way too late, discover that they had radically different ideas about who owns what.

This is a great use of the business plan. If there’s awkwardness about who owns what when friends and family are involved, you solve that with the need to spell it all out for the plan. Don’t wait. Don’t wonder. Talk it out. The business plan is a built-in natural format that all of you can understand.

The key here is to get it in writing. That doesn’t mean legal contracts written and negotiated by attorneys, at least not in normal cases, and not in the beginning. What it does mean is getting your people together and iron out who owns how much of the company, and what the responsibilities are. And write that down – share it, so everybody is clear. And you can use it later.

Now, who owns what percentage?

Start with the money. Until proven otherwise, the one who put in all the money deserves all the ownership. That’s simple enough.

And then, from that starting point, if two or more partners agreed that one would earn ownership by working for free or less than market rate, then that can equate to money. Or if one contributes existing intellectual property such as written material or software code because that can equate to money too. But that should be spelled out and agreed upon before you start. Avoid vague promises related to so-called “sweat equity,” meaning work compensated by shares of ownership. Build a formula based on market value of the work. And put it in your plan.

And I personally don’t believe having had the idea, or not, matters. Ideas have no value. Work has value. Creative work and patents have value. Content has value. And money has value.

Always get a business agreement in writing!

I’ve said business plan above, but the underlying need here is bigger than the business plan. The plan is a great format, but let’s emphasize the main point: To me this is yet another example of why I’ve said, and written, over and over again, spell it out at the beginning and get it in writing. Not necessarily all legalese like a contract, but at least the basic points of agreements, with signatures. Here‘s what one lawyer (and I’m not a lawyer, so don’t think I’m giving you legal advice here) says about that:

It goes without saying: the best way to deal with a botched verbal contract is to avoid the whole mess in the first place. Get it in writing. People remember things differently. People don’t remember. People lie.

Get it in writing. And then stick to it.

About the Author:

Tim Berry

Guest Blogger

Founder and Chairman of Palo Alto Software and bplans.com, on twitter as Timberry, blogging at timberry.bplans.com. His collected posts are at blog.timberry.com. Stanford MBA. Married 44 years, father of 5. Author of business plan software Business Plan Pro and www.liveplan.com and books including The Plan As You Go Business Plan, published by Entrepreneur Press, 2008.

Comments:

Business plan are very important for every business, since it lays the foundation of planning, basis on business plan theory all character gets their role to play. So this area shouldn't get neglected.
I too believe that business agreements shouldn't be taken lightly, rather all importance needs to be paid to make it worthwhile & the same should be implemented & acted lawfully.
That is so true. I have found that having a partnership is really hard and all details should be hashed out and in writing from the beginning. It save a lot of heart ache later. Thanks for the article! http://www.bestcontractorsdallas.com

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