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Key Idea: Avoid A 50-50 Partnership

Roy Crownover,  the founder of Texas Nameplate, explains that shared ownership is not the same as shared leadership. 33-33-33 is OK, but 50-50 is an accident waiting to happen. No matter how well you and your business partner complement each other, no matter how clearly you are able to define each other's roles and responsibilities, there will come a point when you fundamentally disagree on an issue.

Key Question:

A: 

Roy had two partners which was the only way he could get started in business but he was glad when he was able to buy them out.

Q:  Why is Roy against partnerships?

A:  The time came when Roy's partner was ready to relax, but Roy still had to put two kids through college. Buying out his partner was problematic because of the legal structure.

Q: If you are in business with one other person, how do you decide on stock ownership if 50-50 is not a good idea? How can you be fair to the owner with less than 50%?

A: The purpose of avoiding 50-50 ownership, even if it is 51-49 instead, is to have a clear and frank understanding at the outset of forming the business. Two individuals commit to work hard together to grow a business and decide that if they ever disagree, which one of the two of them will have the final say. This may seem heartless, but there really is no practical alternative. Without this agreement, the business would be frozen and not able to react to changing circumstances. And for obvious reasons, this is not something you want to discuss with your business partner when the disagreement arises.

Ownership and profit distribution are not synonymous. The decision between partners of who should have the final say is independent of salary levels, dividend distributions or proceeds from the sale of the company. These can still be 50-50, protecting the minority shareholder.

Every corporation should have a clearly defined exit strategy for all parties with the valuation process defined in advance. At the time an owner is ready to leave, the company's value has to be determined so that the person leaving can be bought out at fair market price.

Think about it

If you and your partner are 50% owners of your business, do you have a formal or a tacit understanding of who makes the final decision when the two of you disagree? Do you have a valuation process defined?

Clip from: Texas Nameplate

WINNERS OF THE MALCOLM BALDRIGE AWARD... TWICE!

Dallas, Texas: Dale Crownover took Texas Nameplate from being just another print shop to become the first small business to be given the Malcolm Baldrige National Quality Award. You will find their nameplates are on virtually everything. They print those specialized labels that out last the item to which it is attached. And because of quality controls, this group is the international supplier to the world's largest companies.

When he went to Washington to receive the Baldrige, the other two winners, Boeing and Solar Turbines, and all DC bureaucrats listened in awe; this man talked about the essence of quality, family and this nation's charter to achieve and to always do better.

We can all learn from Dale and his people. Yet, they did not stop working at it;  and six years later, they received the award again!
 
You will quickly see that this is an extraordinary work force. When we first taped this episode of the show, nobody including Dale had a college degree and some employees had just received their high school diploma. Notwithstanding, here you learn how they make world-class products and reap plenty of profits.

Oh yes, today, Dale and others have earned a college degree.

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Texas Nameplate

Dale Crownover, Owner

1900 E. Ervay
Dallas, TX 75215
2144288341

Visit our web site: http://www.nameplate.com

Office: 2144288341

Business Classification:
Manufacturing

Year Founded:

Avoid A 50-50 Partnership

ROY: And then Tommy and I, we bought him out. We split it 50/50, and that is the mistake today. Don't ever end up with a 50/50 business association 'cause you don't have no power from either side. See, if you're a partnership, and you're 50/50, and if you don't get along with each other, you can take your half and go down the street. Now if you're a corporation, you got a little piece of paper over there, and that's all you got is that little piece of paper. If you don't like it, you can stay or you can get out, but you don't take none of the business with you. That's a corporation. Well, it's a thing. So a partnership is different. So when we come 50/50, then I had to go along and run the shop. And my business associate was 10 years older and--well, see, that put me at a--my kid was fixing to go to college. His had already gotten out of college, so he's not aggressive.

HATTIE: All right. He's ready to sorta chill out.

ROY: Correct. So what I decided to do, I said, `Look, I need to buy you out or you buy me out.'

HATTIE: Did you have the business valued by some out...

ROY: No, ma'am.

HATTIE: You agreed to a price...

ROY: We were on the verge of going bankrupt.

HATTIE: OK, so there was no value.

ROY: No, ma'am.

HATTIE: Except maybe some equipment.

ROY: That's right.

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