People bring partners into their business for a number of reasons, and the structure of these partnerships can be wildly different - so it can be difficult keeping up with how each one looks. However, we can describe this pretty literally; an equity partner enjoys full, equal partnership rights in the company. This blog post by Business Kitz will step you through the finer details.
An equity partnership structure operates on an invest and return basis. An equity partner ‘buys into’ the business in the hopes that profit growth will continue, thus injecting capital into the business. This personal, monetary commitment means that they legally own part of the business. As a result, the outcome of their investment is contingent on the performance of the company, thus providing extra motivation for employees that are financially invested. Generally, the profits of the business are distributed equally amongst partners. However, this means that all equity partners will be responsible for any debts and losses incurred, too.
Since they are considered to be partial owners, they have full voting rights in the significant decisions of the business, including the future of the business. There is also opportunity for increased income in accordance with company profit growth, thus resulting in salary growth.
Equity partners have to invest a lot of money initially to buy into the business, and it may take a while to see company growth and reap the benefits of the investment. There is also equal liability for debts, thus putting partners in a compromising position if the business is not succeeding.
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If you are considering buying into a business as an equity partner, we highly recommend you read the partnership agreement thoroughly, especially clauses that cover disputes to ensure you are protected in the case of a disagreement. Therefore, if someone decides they no longer wish to be an equity partner, there are clear steps to follow.
Business Kitz have a number of exemplary templates available via our subscription plan that can assist with a number of commercial agreements.
Becoming an equity partner is an exciting opportunity that can promote a lot of individual revenue if the business continues to grow. If you require further advice about this process, our sister company, Legal Kitz, can assist! We provide a FREE 30-minute consultation to set you in the right legal direction. Click here to book a FREE consultation with one of our highly experienced solicitors today or contact us by calling 1300 988 954.
