If you and a friend incorporate a business, why would you agree to hold 30% of the stock and allow your friend to hold 70%?A friend convinces you that she has a great idea for a business and the 2...

If you and a friend incorporate a business, why would you agree to hold 30% of the stock and allow your friend to hold 70%?

A friend convinces you that she has a great idea for a business and the 2 of you incorporate. You supply her the funds and let her make all of the executive decisions. Under the agreement you hold 30% of the stock and she holds 70% of the stock. I am trying to figure out why I would agree to let her make the decisions.

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pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

There are two aspects to this decision.

First, you have to decide to let your partner run the business while you supply the money.  This decision is presumably based on your relative resources.  She is the one who has expertise in the line of work that your proposed company engages in.  You have the money.  It makes sense for you to let her run the company since she knows more about that sort of thing than you do.

Second, you have to decide to give her 70% of the stock.  The main reason to do this would be that you feel that she is making the bigger contribution.  You must think that her skills are more vital to the success of the firm than your money is.  Therefore, you feel that you should give her the larger share.  You may feel that she could probably find alternative sources of funding if you try to take a larger percentage of the stock.

cutezjavi's profile pic

cutezjavi | Student, Grade 9 | (Level 1) eNoter

Posted on

If you're having some partenership with your friend you'll take the responsibility of ordering some stock whereas you'll be giving your friend much more the stock to overcome the burden of work maybe.

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