How do we divide shares among contributing partners when one partner is silent?
I want to start a partnership business. There are four partners contributing the same capital but one is working as a silent partner. What should be the share of the silent partner and for how long?
The partnership starts with an equal equity contribution, but there is one partner who will have no active role in the business. However, he/she may have strategic knowledge or experience which can be critical in the company's future development. Projecting the future contribution of each partner must be seen in both direct and abstract terms. If the fourth partner has no input other than a financial one, the contribution factor is diminished, but it is often difficult to convey and have it accepted by the passive entity.
The best way to deal with this issue is to include a Buy/Sell clause in the partnership agreement which permits any of the partners to initiate a Buy/Sell clause at any time. The passive investor is at a disadvantage in this scenario and will almost necessarily opt to sell. You will probably need an outside arbitrator to decide on a fair market value for the shares.