Ownership of your business should never be equally split between you and your partner (or 4, or 6, or any even number where a conflict can result in a 50/50 split). In the beginning of the business, everyone is happy, but what happens when the business takes off (or starts to fail)? Eventually, the two partners are going to disagree. If neither side budges, the parties are in a deadlock. Louisiana does not have a statute which resolves such disputes, so if the parties haven’t previously agreed how to settle the dispute, you’re going to have to head to court.
To avoid court, your operating or partnership agreement needs to contain a deadlock provision. This provision is triggered when neither party will budge and outlines how the conflict is resolved. Since operating agreements can be incredibly broad, there are multiple ways to word this provision:
- You can opt for mediation or arbitration.
- The “Texas Shootout” approach is my favorite, but that’s just because of the name. One member is forced to offer a price to buyout the other member, and the other member can either sell his membership at the offered price, or purchase the offering member’s membership at the offered price.
- You could even give one person 51% ownership, and avoid any deadlock completely. Keep in mind though, that the party with 51% will then be calling all the shots.
Going to court to resolve a conflict costs time and money. Litigation may take months or years, and since both parties may need to hire attorneys, the legal fees can quickly get out of hand. Do your partnership a favor and make sure that your operating agreement has a deadlock provision before there’s a disagreement.