The Price of a Partnership

A proud landowner sat across from the representative of a reputable property development company. The two men were engaged in a serious discussion that could shape the future of Landowner’s land.

“Sir, I’m interested in collaborating with your company to establish a joint venture and build a mall on my land,” Landowner said confidently. “I agree to take 30% of the shares in the company.”

The representative nodded thoughtfully. “That sounds promising. But would you also agree to transfer the ownership of your land to the new company?”

The Landowner considered the request carefully. “Yes, I’m willing to do that. However, I want to include an anti-dilution clause in our agreement. This way, my shares will remain at 30% under any circumstances—forever.”

The representative raised an eyebrow. “Ah, an anti-dilution clause. Did you consult someone about this?”

“Yes,” Landowner admitted. “I have a friend at the bank with significant experience in these matters. I’m interested in this partnership, but only under that condition.”

The representative smiled reassuringly. “Fair enough, but I assure you there’s no need for such a clause. Our company is trustworthy and would never engage in anything questionable.”

“I understand,” Landowner said firmly. “But this is a big project, and I prefer to be cautious.”

“Very well,” Representative relented. “I’ll arrange the signing of the partnership agreement and the formal establishment of the joint venture.”

“Sounds good,” Landowner agreed with a handshake.

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Five years later, the mall had been completed and in operation for three years. It had become a bustling hub, attracting crowds daily. The landowner reviewed the financial reports, expecting positive results from such a busy establishment.

His face twisted into a frown as he read the documents. “Mr. Representative,” he said during a meeting, “this mall has been thriving for years, always full of customers. Why does the financial report show consistent losses?”

The representative maintained a composed demeanor. “The financial condition is as stated in the report, sir.”

The landowner’s eyes narrowed. “I also noticed a monthly management service fee of 15% of the revenue paid to Vacol company. What is this for?”

“Ah,” The representative responded smoothly, “Vacol company is part of our group. It’s a management service company that handles the mall’s operations from a managerial perspective.”

The landowner’s jaw clenched. “But without this management service expense, the company would have a 15% profit. As it stands, there’s never any profit. When will I receive my share of the profits?”

The representative’s smile didn’t waver. “I’m sorry, sir, but this arrangement is already locked in. We’ve signed a 20-year contract with Vacol company.”

The landowner’s voice grew tense. “So my 30% share is essentially worthless. There will never be a profit.”

The representative said nothing, but the faint smile on his face spoke volumes.

P. S For landowners, particularly those unfamiliar with various business schemes, it is crucial to consult with experienced professionals before entering into any partnership with a company. Avoid assuming that you fully understand all aspects on your own. Dilution of shares is not the only potential issue when dealing with companies that may have less-than-honorable intentions.

Even when a landowner holds a significant share, there may still be no financial benefits to enjoy if the company is structured to consistently report losses year after year. This situation becomes possible when the partnership is designed to render the landowner passive, with full management control handed over to the property company. In some cases, the property company may establish an additional entity posing as a "service company" that imposes certain fees on the main company.

What If the Landowner Wants to Sell Their Shares? This scenario would depend heavily on the terms of the agreement. Is there a clause allowing the shares to be bought at a very low price by other shareholders? Or are there other conditions designed to disadvantage the landowner? These are critical aspects that should be carefully reviewed and negotiated during the initial agreement process.