A few years ago, three friends decided to start a business together. They were excited, full of ideas, and eager to begin. They formed an LLC, split ownership evenly, and jumped in.
At first, everything looked promising. Then one co-founder began missing meetings, avoiding calls, and eventually drifted away. After months of costly and difficult negotiations, the remaining two agreed to buy her out at a price that felt far heavier than expected.
They were not only paying money. They were paying for the realization that equity carries real weight and can create unexpected challenges when it is shared too quickly.
Why Equity Matters
Equity is more than a slice of the pie. It represents influence, potential profits, and a voice in the direction of the business. Depending on how governing documents are drafted, it may even allow a minority owner to block a lucrative buy-out offer. In other words, it ties the future of the company to another person’s decisions, values, and commitment. How many people do you trust that much?
This is one reason why friends and family do not always make the best business collaborators. You may trust them in many parts of life, but that does not mean you know how they will respond when disagreements surface or when the long work of building a business takes hold. I have personally witnessed relationships with parents, children, siblings, cousins, and even lifelong friends unravel when ownership was on the line. I doubt any of them began with that outcome in mind.
Without time working together, equity can feel like a fragile foundation.
Beyond Equity
Small business owners consider giving up equity for many reasons.
For example, sometimes outside investors are needed. These proposals can feel one-sided or long-lasting. One way to approach these situations is to think about structures that set a cap for repayment, include a clear path for interest or return, and avoid terms that extend ownership indefinitely. And it is okay to say ‘no’ and hold out for something better.
And when it comes to rewarding employees, alternatives such as bonus structures or profit-sharing may provide recognition and incentive without requiring a permanent ownership stake.
Another Way Forward
Working with others can be powerful. The key is to approach equity with care. Test the relationship. Notice how you work together when pressure builds. Put agreements in writing while everyone is still optimistic. These can take the form of buy-sell agreements, founders’ agreements, or provisions in an operating agreement.
Equity is not just an idea on paper. It is one of the foundations of a business. Protecting it early can provide stability and preserve flexibility for the future.
Final Thoughts
Most entrepreneurs hope that the energy of the early days will last, that everyone will remain aligned, and that relationships will stay intact. Sometimes that happens. More often, things change.
If there is one idea to carry forward, it is that equity deserves attention. It is valuable, and it is worth taking the time to think through before sharing. Your future self may be grateful that you did.
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