When Business Partners Stop Getting Along

Most business partnerships start with a lot of optimism.

Everyone is excited. Everyone has a role. Everyone believes they are working toward the same goal. And, in the beginning, they probably are.

But businesses change. People change too.

One owner may feel like he is doing more of the work. Another may feel like she took more of the financial risk. One wants to grow. One wants to keep things the same. One wants to hire a family member. The other thinks that is a terrible idea. Sometimes the issue is money. Sometimes it is control. Sometimes it is just years of small frustrations finally bubbling over.

That is usually when everyone starts looking for the paperwork.

Handshake Deals Only Go So Far

A lot of business owners start with a simple understanding: “We trust each other.”

That is fine. Trust is important. But trust does not answer every question.

Who gets to make decisions? Who controls the bank account? What happens if one owner wants out? How is the business valued? Can an owner sell his interest to someone else? Can one owner force a buyout?

These questions may not seem urgent when everyone is getting along. But when owners disagree, they become very urgent.

And if the agreement does not answer them clearly, the business can get stuck.

A 50/50 Business Can Freeze Up Fast

This is especially true in a 50/50 business.

If the owners cannot agree, who breaks the tie? What if one owner wants to sell and the other does not? What if one owner stops working in the business but still wants to receive the same economic benefit?

The business does not get to pause while the owners argue. Payroll still has to be made. Customers still need service. Rent still comes due. Vendors still want to be paid.

Without a deadlock provision, buy-sell agreement, tie-breaker, or some other exit process, the owners may end up in court. And once that happens, the dispute usually becomes more expensive, more stressful, and harder to control.

Write the Rules Before There Is a Fight

No one really wants to talk about business breakups when things are going well. It feels negative. Maybe even a little awkward.

But that is exactly the right time to do it.

A good operating agreement or shareholder agreement should address the uncomfortable issues before they happen. Death, disability, divorce, bankruptcy, retirement, and personal misconduct are all issues that will inevitably pop up during the course of a business relationship.

Not because anyone expects the partnership to fail.

Because if something does go wrong, the owners should not be making up the rules in the middle of the fight.

Business partners do not need to agree on everything forever. That is probably unrealistic.

But they do need a plan for what happens when they don’t. We are prepared to make this plan for your business and assist you in navigating the obstacles of business.