Splitting decision-making 50/50 with your business partner can cause a multitude of conflicts for your company. Many business partners end up splitting decision-making equally by default because their partnership documents do not clearly define the roles and responsibilities of each partner. A South Carolina business attorney can guide you through the formation of your partnership or another business entity and draft documents to help you avoid these and other foreseeable issues.
How Equal Decision-Making Can Cause Problems for a Company
When both partners have 50 percent of the decision-making authority in a company, they can become deadlocked when they disagree on a topic. As a result, production can get halted until the partners resolve the conflict. The entire commercial entity can collapse.
There are several solutions to this situation:
- Set up the company as a 51/49 partnership instead of 50/50. When there is no consensus on a decision, one partner can make the call on the issue and avoid downtime for the company.
- If the partners absolutely will not agree to a 51/49 partnership, then allocate specific 51/49 control to the partners for certain types of decisions. For example, the partner with an IT background could make the final decisions about applicable tech issues if the two partners cannot reach an amicable agreement after extensive discussion. You will want to put the details of this arrangement in writing.
- The combined shares of partners who get added after the initial setting up of the company should be less than half of the total shares of the business. Let’s say that the founder takes on two partners a few years into the enterprise. The founder should retain a greater than 50 percent ownership of the company to keep the new partners from causing a stalemate. A 60/20/20 arrangement could prevent such problems.
- If the business entity is already set up, and the partners are experiencing problems or want to avoid these situations, it is possible to change the arrangements. For example, the partner who wants decision-making control could buy one share of the other partner to achieve a 51/49 partnership.
Impasses are not the only reason that equal partnerships are usually not advisable. A 50/50 ownership scheme is often not the best use of each partner’s unique skills and experience. Let’s say that one partner is an innovator, and the other partner is a natural manager.
If the person with managerial skills has an equal say on setting up the subject matter of the business, the product could suffer. Also, the innovator should probably take a back seat to the decisions of the manager when it comes to handling administrative details after the product launch.
While it is possible to modify the business arrangement after the initial start-up of the company, it is a better practice to address these matters during the initial formation of the company.
Contact Willcox, Buyck & Williams, PA today to learn more. Our South Carolina business attorneys can answer your questions and advise you on the best approach for your situation. Every commercial entity is unique, and “one-size-fits-all” templates are rarely a good fit.