50:50 Partnership in Commercial Businesses
In most cases, disputes amongst shareholders at the formation and early stages of a commercial enterprise are not that common. During the early stages, the shareholders may ignore small disagreements between them in order to realize their objectives and ideas, and to avoid damaging the business that they have established for profit.
However, when the business starts to make money (or suffers a loss) the situation may be very different. In the upcoming years, changing circumstances may force partners into a dispute and serious differences may emerge when making strategic decisions in the management of the business. Partners may find themselves in a conflict which is hard to avoid. There are not many options in this case: Partners will either try to reconcile by themselves or seek remedies in court. At the end of the legal proceedings, it is also questionable what the winning party, in fact, won, after spending countless time and money on litigation. Also, the default provisions of state law in which the business was formed may not always be desirable.
For this reason, an agreement clearly defining the rights and responsibilities between shareholders, which is called Shareholders Agreement or Operating Agreement, depending upon the type of the entity, should be drafted and signed in addition to the other required documents when an entity is formed with another partner. If there is a 50:50 partnership, a deadlock (failure of decision making mechanism) clause should be added to the agreement. Deadlock provisions regulate how the disputes will be resolved in case the decision making among partners is totally blocked: It will help you to stay away from the courts.