Legal Reasons Why a 50/50 Partnership Split Should Be Avoided
Equal shares seem fair. But business partnerships are complicated and may cause conflict especially when partners are not in agreement with — or properly prepare — documents setting forth the obligations and responsibilities of the partnership and contracts affecting the business. When partners are all equal in the business, any type of dissolution of the association often leads to severe difficulty for everyone involved.
This is usually due to the amount of involvement a partner has in a company. This could be the daily duties of keeping revenue accruing, the management performance, contacting other officials and keeping the books going. If any other professionals are not hired to assist the business, partners often take up these obligations. There are also legal concerns when partners may have an equal share of interest in the organization.
When persons are contacted or contracted to join a company, they often bring finances, skills or another type of useful need to the business. If the partners are unable to retain a peaceful and amenable relationship, these items the individual brought may be removed when he or she is no longer part of the business. This could be a method of doing business, ideas that have created a competitive edge or even funds to keep the company afloat as it gets off the ground. While operations agreements often detail how certain processes are managed, the money a partner brings into the company should be compensated at some point. This means that if the organization is a small one, this could cripple it unless some sort of understanding is in place.
Conflicts Breaking Apart Businesses
Many who understand business partnerships have explained that a fully equal partnership no matter how many persons are involved is not the best idea. This is primarily due to the complications that arise when the individual decides he or she must leave. It is entirely different than when the person passes away. However, partners with a completely equal interest or share in the business have the same rights as the person that initiated the partnership with him or her or the group. This means that decisions may occur that are not approved by the original owner. Additionally, if he or she must leave the company for any reason, he is usually compensated for his share of the business. Providing for the share or interests is often not possible immediately or all at once. This causes the remaining partners or owner in financial difficulty.
It is imperative that a conflict does not cause a split between partners if there is any possible way to prevent the argument and eventual dissolution of the relationship. To avoid a complete collapse of the company, it is advised by many in the commercial world to ensure that partners added to the business do not possess as much as half of the interest or shares. Even with the greatest contracts to prepare for disagreements, those with equal power in the organization are provided with the opportunity to make the same amount of changes as the other partner or owner. This could mean a deadlock with certain decisions, a struggle where the business stands still until someone budges or similar concerns that could half revenue and transactions from proceeding.
Avoiding Court Judgments
There are many situations that call for a legal battle to continue to the court room, but it is possible to ensure a resolution without litigation. There are alternate possible solutions to the matter, other legal options available or the two parties may conclude the disagreement and continue doing business together. If there is no potential to settle the matter without additional assistance, the partners may choose to mediate or arbitrate the concern for a compromised resolution that may be enforced as long as the individuals are amenable to the process. It is still best to contact a lawyer for this method, but if one of these procedures is used, the legal professional may only be an advisor.
Possible Solutions to Disagreements
One option may be through a buyout of the partner that is leaving. This could be a fair market value of the shares or interest, or it could be an estimated price based on various related factors. This would buy the interest in full or part based on how many partners are remaining in the company. Another manner to avoid a deadlock is giving enough interest away through a sale or barter so that he or she has 51 percent ownership. This does provide him or her with the deciding interest or shares in the business though.
In order to avoid the costs of courtroom litigation, a business lawyer should be hired for assistance. In many situations, this legal professional is able to negotiate a settlement offer outside of the courts for a swifter and cheaper resolution.