50-50 AGREEMENTS

When two folks decide to do business together, they commonly agree that they are 50-50 partners, whether a partnership; a corporation or an LLC. That means they both must agree on decisions. That arrangement is fine so long as they agree on everything. It is a recipe for disaster if they don’t.

A 50-50 partnership requires 100% agreement. If partners don’t agree, the business is paralyzed and commonly the relationship is destroyed. The parties are left with some third party – a judge, an arbiter, effectively running the business, because the decision authority now rests with that third party, a party who can easily and unintentionally make bad decisions which can damage, if not destroy the business.

There are two solutions to this dilemma. First, give one-person decision-making authority. That is easily done by allocating ownership at lease 51-49. The hardest part of this approach is getting one of the people to accept the minority role.

A second approach is to provide a mediation/arbitration provision that either party can invoke. It does involve a third party, but the mediator has no authority and simply tries to get the parties to agree. The arbitrator is different, as he/she decides and their decision is generally final. The benefit of the mediation/arbitration approach is the parties get to select the Mediator/Arbitrator. There are procedures set out in the American Arbitration Association (AAA) rules for mediation and arbitration that are commonly followed.

One of the benefits of the mediation/arbitration process is that it has a great tendency to force the parties to reach agreements amongst themselves. The parties don’t want to effectively turn their business over to a stranger, who knows nothing about it.

A third option, we call the “nuclear option” is a “put or call” agreement, whereby one party offers to buy out the other party or sell to the other party, for a fixed priced. The other party must buy or sell for the fixed price.

So, the lesson from this: don’t enter a 50-50 agreement or create a structure to resolve disputes. Otherwise, you have turned your company over to some unknown party.

“Please let me express my gratitude for your help on my Last Will and Testament. I feel like my Will is finally in a comprehensive place with regards to the attention the Bendelow and Wolfson gave in every detail. My former Will was a temporary Legal Zoom variety and your expertise really pointed out the superficiality that such a document presented for me. You heard my concerns about making estate planning easy and leaving no loose ends for my children on the eventuality of my death. I appreciate your time and consideration. If there are any changes that occur in the next few years, I will be sure to contact you and review the situation. “

Ellyn Hilliard

“Ted Bendelow is an excellent attorney and counselor. He has provided me an my company with invaluable legal assistance and guidance in resolving several small business related matters including negotiations with my former business partner which resulted in his complete elimination from the business and the elimination of a significant amount of debt incurred by my former partner in the name of the business for personal purposes. He is fair and always conducts himself in a highly professional manner. He focuses on important matters and kept me from worrying about unimportant details during a long and difficult negotiation.”

Frank Cutler, President Mizell Trains, Inc.
Bendelow and Wolfson