Partnership ownership split - what is fair ?

Question

For the few 2 years of my business my business partner (my mother and law) and I have always been 50/50 partners. My Wife has been helping quite a bit with paper work and other aspects of the business and my mother in law wants her as an owner on the operating agreement.

Is it right and fair for my Wife and I to be 50% ownership since we are one in the same and mother in law to be 50% or should we all be 1/3rd ?

(No comments regarding keeping business in the family please)

Daniel Mohnkern · Answer

Each individual should have a percentage commensurate to the amount of value they bring to the table.  It may be 30/30/30, 40/20/40, 45/10/45, 90/7/3,...etc.  The fact that the mother in law is proposing that the wife gets cut into the deal should be enough to require her to give up a portion of her ownership as well.

If you are currently at 50/50 and you give up part of your portion to cut in your wife, that makes your mother in law the majority owner which is a stronger position than either of the two of you. Her decisions or opinion will, from then on, trump you.  If your intent is to keep your position in equal standing to your mother in law for whatever reason, then this is a vital time to make sure that remains that way.

Daniel Mohnkern · Answer

After all, even though you are sure it will not happen, you must always prepare for the unlikely event that the two of you might no longer be one and the same. If that ever happens, and you give up the majority position, you are screwed.