What To Do When Facing Co-Owner Disagreements

Co-owners of a business may face conflicts in their relationship from time to time. Similarly to marriage, professional relationships like this take a great deal of time, effort, respect, and communication to keep things running smoothly. When you and your business partner clash, you may be wondering what you can do.

There are several factors to consider when dealing with co-owner disagreements, including voting control, individual roles, buy-sell agreements, and individual personalities. Fortunately, there are various ways to reach conflict resolution that can prevent matters from escalating. 

Voting Control 

If co-owners are 50/50 owners with equal rights, they share equal voting control. However, agreements outside of this can be more complicated and depend on documents such as Articles, Bylaws, and Operating Agreements.

In agreements of different percentages, such as 60/40 or 90/10 partnerships, control can vary. For example, decisions may require a 2/3 vote or a unanimous vote. 

Further, voting stock and non-voting stock percentages come into play. You may have one owner, such as the founder, who has 90% of the voting stock and only 30% of the non-voting stock. In that case, that owner might control many of the votes, while only owning a small percentage of all of the outstanding stock. 

Roles

Each person has their own role in the company that should be clearly outlined from the beginning. It is important to determine each partner’s everyday responsibilities pertaining to the business, as confusion surrounding roles can lead to tension. 

As an example, picture a 50/50 ownership where one person is the President and CEO. The power that comes with those titles in the partnership needs to be understood among both parties. If there is a disagreement, both people should be aware of the other’s capabilities, such as whether one person has the authority to terminate the other’s employment. 

Buy-Sell Agreements

Buy-sell agreements are contracts that address what happens to an owner’s interest in a business in the case of a triggering event, such as death, disability, termination, or owner disputes. They outline how an owner’s interest will be transferred upon their exit.

These documents outline matters such as whether the company or other owners can buy the departed owner’s interest and ways to come to a resolution that is in the best interest of the company, such as through a redemption agreement or a cross-purchase agreement. Buy-sell agreements also define payment terms for interest that will be transferred, which helps to reduce future conflicts.

Personalities

The unique personalities of each co-owner always come into play, and there will inevitably be differences that arise from time to time. It is beneficial to learn how to see each other’s differences as strengths and find ways that these traits can complement each other. 

As an example of personality differences, one partner might be more assertive and straightforward, while the other might be more passive and have better communication skills. While these qualities could lead to friction between partners, they could also be used for good. One partner could lead certain negotiation efforts, while the other could lead in settings where communicating with clients is necessary. 

Learning to value and respect each other despite personal differences can turn out to be a major strength for a business. Additionally, a willingness to work it out when disagreements arise can be the deciding factor in whether or not a partnership continues. 

Resolution Alternatives

In the case that co-owners are unable to resolve things on their own, one possibility is to hire a counselor to help them through a conflict, whether that is a business consultant, a relationship counselor, or a business coach of some kind. 

If this is not successful, documents can give either party the right to force a mediation, arbitration, or court resolution. 

At MKP Law, we offer legal guidance and support for a wide range of areas. If you would like to consult our team concerning a co-ownership conflict, contact us today so we can help.