Business Law – Joint Owners

Capable. Lean. Agile.

It is a common practice when two folks start a business to decide on joint ownership. It might be as 50-50 partners in a partnership, or 50% ownership in stock, or as equal members and joint managers of an LLC. Let me suggest it is a recipe for major trouble, or a disaster.

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The problem comes when there is a disagreement. How do you settle it? Somebody has to concede, or there is no resolution–which is what commonly happens. Since neither party has a majority, either party can block a decision. The decision then gets made by a third party–either an arbitrator or a judge. That means you have turned your business and the resolution of the dispute over to someone you don’t know, who knows nothing about the nuances of your business, or the effect of resolving the impasse. His/her job is to resolve the dispute–that’s it.

Usually the dispute is over a big issue. Sometimes it is financial, sometimes it is emotional. Whatever the basis, it is obviously important enough to the parties to create this impasse and commonly means the relationship cannot continue.

As radical and unacceptable as this may sound, I suggest that someone has to have the final decision making authority, otherwise you are back to the judge or arbitrator. Remember that the decision maker has a fiduciary duty to the best interests of the business, not their personal interests.