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A 50-50 partnership may lead to deadlock

On Behalf of | Oct 9, 2020 | Business Litigation |

When starting a business with someone else, your gut probably tells you to split ownership 50-50. That seems fair, it makes both of you happy and you avoid insulting the other person by suggesting you should have more power or more control. You likely also think that it’s realistic; for the young business, you both plan to do the same amount of work, so an equal split is all that makes sense.

You’re not wrong about any of these assessments. But that doesn’t mean there aren’t any problems with this setup. One of the biggest ones is a deadlock.

Imagine a company with five owners. They all sit on the board together. When they need to make big decisions, like where to move as they expand into international business, they just vote. No matter how that vote falls, at least three of them are going to be on one side.

With your company, though, a vote becomes impossible. Unless you already agree, you’re just going to be deadlocked, with one of you voting one way and one voting the other.

This can hold your company back. You may become stagnant. It may be impossible to change or grow. You may both feel like the other person is harming the company with their stance. In the worst cases, it can even lead to a legal dispute as you try to decide how to make a decision or accuse the other person of acting without your permission when they had no right to do so any more than you did. In these complex situations, understanding your legal rights is crucial.