How to Change Your Business Ownership Percentages in 4 Easy Steps

How to Change Your Business Ownership Percentages in 4 Easy Steps

Key Takeaways:

  • Business ownership percentages are the stake each owner has in a business, and they determine how much profit, loss, and control each owner has.
  • Changing business ownership percentages requires reviewing the founders’ agreement, negotiating the terms of the change, drafting a buy-sell agreement, and updating the records and documents.
Business ownership percentages are the stake each owner has in a business, as expressed by a percentage. They determine how much profit and loss each owner is responsible for, as well as how much control they have over the business decisions.

But what if you want to change your ownership stake in a business? Maybe you want to sell some of your shares, buy out another owner, or bring in a new partner. How do you go about changing the ownership percentages legally and fairly?

In this guide, we’ll explain the importance of business ownership percentages and how to change them in four simple steps.

Disclaimer: This is not legal advice and should not be consumed as such.

Step 1: Review your founders’ agreement

The first step to changing your ownership percentages is to review your founders’ agreement. This is the document that you signed when you started the business, which outlines the initial ownership percentages, roles, and responsibilities of each owner.

Your founders’ agreement should also have a clause that specifies how to change the ownership percentages in the future. For example, it may require the consent of all owners, a majority vote, or a certain valuation method.

If you don’t have a founders’ agreement, or if it doesn’t address the issue of changing ownership percentages, you’ll need to create one or amend the existing one with the help of a lawyer.

Step 2: Negotiate the terms of the change

The next step is to negotiate the terms of the change with the other owners. You’ll need to agree on the following:

  • The reason for the change. Why do you want to change the ownership percentages? Is it because of a change in the contribution, performance, or goals of an owner? Is it because of a personal or financial situation? Is it because of a dispute or conflict?
  • The new ownership percentages. How much of the business will each owner own after the change? How will this affect the profit and loss distribution, voting rights, and decision-making power of each owner?
  • The price of the change. How much will the owner who is selling or buying shares pay or receive? How will you determine the fair market value of the business and the shares? What method of payment will you use?

Step 3: Draft a buy-sell agreement

Once you have negotiated the terms of the change, you’ll need to draft a buy-sell agreement. This is a legal document that formalizes the change of ownership percentages and the details of the transaction.

A buy-sell agreement should include the following information:

  • The names and addresses of the parties involved
  • The date and effective date of the agreement
  • The description and value of the business and the shares
  • The new ownership percentages and the number of shares being sold or bought
  • The price and method of payment for the shares
  • The representations and warranties of the parties
  • The signatures of the parties and witnesses

You’ll need to consult a lawyer to draft a buy-sell agreement that complies with the laws and regulations of your state and industry.

Step 4: Update your records and documents

The final step is to update your records and documents to reflect the change of ownership percentages. You’ll need to do the following:

  • File the buy-sell agreement with the appropriate authorities, such as the state, county, or city
  • Update your business registration, licenses, and permits with the new ownership information
  • Notify your bank, accountant, and tax agency of the change and provide them with the buy-sell agreement
  • Update your business plan, financial statements, and budget with the new ownership percentages and projections
  • Update your website, social media, and marketing materials with the new ownership information

Changing your business ownership percentages can be a complex and sensitive process, but it can also be an opportunity to grow and improve your business. By following these four steps, you can change your ownership stake in a legal and fair way.

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