We will be taking on angel money.. The partnership terms are still negotiable.
If you own 51% of your company and your partner owns 49%, you have a majority ownership. Here’s a detailed explanation of what this means for decision-making authority and how it might be impacted by taking on angel investment:
### Decision-Making Authority with Majority Ownership
**1. Voting Control**
- **General Decisions**: As the majority owner, you have the final say in most company decisions that are put to a vote. This includes strategic directions, business operations, and major financial decisions.
- **Board Decisions**: If you have a board of directors, your majority ownership typically gives you the ability to influence or control board appointments and decisions, depending on how the board is structured.
**2. Operational Control**
- **Day-to-Day Management**: If you are also the CEO or managing director, your majority ownership supports your authority in daily operational decisions.
- **Tie-Breaking**: In case of a disagreement, your 51% stake means you can outvote your partner on critical decisions, avoiding deadlocks.
**3. Legal Control**
- **Bylaws and Operating Agreement**: Your control is also subject to the company's bylaws or operating agreement. Ensure these documents reflect your decision-making power.
- **Amendments**: Majority ownership allows you to influence or directly make changes to the company's governing documents, though some changes might require a supermajority (e.g., 66% or 75%) depending on your bylaws.
### Impact of Taking on Angel Investment
**1. Equity Dilution**
- **Post-Investment Equity**: Taking on angel investment will dilute your ownership percentage. For example, if you raise capital and issue new shares, your 51% could become less, depending on the amount raised and the new equity distribution.
- **Maintaining Control**: To maintain control, you might negotiate terms to ensure your decision-making authority isn’t disproportionately affected by the dilution.
**2. Investor Rights and Preferences**
- **Board Seats**: Angel investors often request board seats or observer rights. This can influence board decisions and dilute your control over strategic decisions.
- **Voting Rights**: Investors might seek special voting rights on certain decisions, such as selling the company, raising more capital, or changing key management roles.
- **Protective Provisions**: Investors may include provisions that require their approval for significant decisions, such as mergers, acquisitions, or major financial commitments.
### Negotiating Partnership and Investment Terms
**1. Protecting Majority Control**
- **Voting Thresholds**: Ensure that critical decisions still require a simple majority, and avoid setting higher thresholds that could undermine your control.
- **Board Composition**: Negotiate board seats so that you maintain a controlling interest in the board’s decisions. For example, if there are five board seats, aim to control at least three.
**2. Anti-Dilution Provisions**
- **Preemptive Rights**: Ensure you and your partner have the right to purchase additional shares in future funding rounds to maintain your ownership percentages.
- **Class of Shares**: Issue different classes of shares with different voting rights to preserve your control.
**3. Investor Agreements**
- **Terms Sheets and Shareholder Agreements**: Clearly define the terms of the investment, including the rights and obligations of all parties. Ensure protective provisions are balanced and do not overly limit your operational flexibility.
- **Drag-Along and Tag-Along Rights**: Understand and negotiate these rights to ensure minority shareholders (including you post-investment) have fair treatment in major transactions.
### Practical Steps
1. **Legal Counsel**: Hire a lawyer experienced in startup investments to draft and review all agreements.
2. **Clear Communication**: Have open discussions with your partner and potential investors about expectations and decision-making processes.
3. **Long-Term Strategy**: Consider how future funding rounds will impact your ownership and control. Plan for growth while maintaining strategic authority.
### Example Scenario
- **Pre-Investment**: You hold 51%, your partner holds 49%.
- **Post-Investment**: You take $100K from an angel investor for 10% equity.
- Your new ownership might be approximately 45.9%, your partner’s 44.1%, and the investor’s 10% (exact percentages depend on the pre-money valuation).
### Conclusion
As a majority owner, you have significant decision-making authority, but taking on angel investment will require careful negotiation to maintain control. Focus on structuring the investment to balance funding needs with retaining strategic and operational authority. Ensure all terms are clearly documented and aligned with your long-term vision for the company.
Would you like assistance with drafting specific legal agreements or preparing for negotiations with potential investors?
