When two people own a business 50/50, disagreements are bound to happen. Most of the time, they can work things out. But sometimes, the disagreement becomes a deadlock where neither side will budge and no tie-breaker exists. At that point, the business can’t move forward. Projects stall. Decisions don’t get made. The frustration builds fast. If you’re in a deadlock with your business partner, you need to know your options before things get worse.
How Deadlocks Happen
Deadlocks often show up during major decisions. Maybe one partner wants to hire a new manager and the other doesn’t. Or one wants to take on debt to expand while the other wants to keep things small. In a 50/50 ownership structure, neither person has the power to overrule the other. That’s where trouble begins.
Sometimes, personal issues add fuel to the fire. Trust may have broken down. Communication may be poor. The business suffers while both sides stay stuck.
Check the Operating Agreement
The first place to look is your operating agreement or shareholder agreement. A good agreement should include a plan for how to handle deadlocks. This might include a buyout clause, a rotating vote, or requiring mediation or arbitration.
If your agreement has deadlock terms, follow them. If it doesn’t or if you never signed one, the path forward will depend on state law and your specific situation.
Use Mediation or Arbitration
One way to break a deadlock is to bring in a neutral third party. In mediation, a trained mediator helps both sides discuss the problem and try to reach a solution. The mediator doesn’t decide anything, they just guide the process.
In arbitration, both sides present their case to an arbitrator, who makes a final decision. That decision is usually binding, meaning both partners must follow it. These methods are faster and less expensive than going to court, and they help keep the business running in the meantime.
Appoint a Tie-Breaker
Some businesses solve deadlocks by giving one person the power to break ties. This could be a trusted advisor, an attorney, or even a long-time employee. If your operating agreement allows it, this can be a fast way to move past the issue.
If you don’t already have a tie-breaker system in place, both partners must agree to bring someone in. That can be hard if the relationship is already strained, but it’s worth considering before heading to court.
Consider a Buyout
When business partners truly can’t work together anymore, a buyout may be the best option in which one partner agrees to sell their share of the business to the other. If both want to buy (or sell) things get more complicated.
Some agreements include a “shotgun clause,” which lets one partner offer to buy the other out at a set price. The other partner must either accept the offer or buy the offering partner out at the same price. This keeps things fair and forces a decision.
Go to Court
If no agreement can be reached, the dispute may end up in court. A judge may order one partner to buy out the other, appoint a receiver to run the business, or even dissolve the company. This process is public, slow, and expensive, but sometimes it’s the only option left.
Before going this route, consider how much you’re willing to spend and how much you’re willing to lose. Court should be the last resort.
Plan Ahead Next Time
Deadlocks are often easier to prevent than to fix. If you’re starting a new business or if your current agreement doesn’t cover deadlocks, now is the time to fix that. Add a clause that explains what to do when partners disagree. It could save you time, money, and stress in the future.
Even in a 50/50 setup, there are ways to prepare for future conflict. Don’t assume good intentions will be enough. Write it down, agree on it, and review it regularly.
A business deadlock can threaten everything you’ve built. If you’re in a standoff with your co-owner or want to avoid one in the future, Arnold, Willis & Conway can help you explore your legal options and protect your investment. Contact us today to schedule a consultation.