By: Joseph Pastore
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Most business partnerships don’t last.
Harvard Business Review says the fail rate for corporate alliances ranges in the 60% to 70% neighborhood.
So, would a 50/50 business partnership improve your odds? Maybe. Fewer “voices” could make things easier or more challenging.
The reasons for the breakup, regardless of the number of partners, have remained consistent over the years:
- Lack of communication
- Different goals and expectations
- Lack of participation/inclusion
Knowing the five ways to break an impasse in a 50/50 business partnership could help resolve the issue in question as well as the outcome.
- Mediation
Mediation is an effective way to solve disputes in business partnerships. Unlike litigation, which tends to pit one partner against the other, mediation is a collaborative process without winners and losers.
The mediator serves in the role as a facilitator who helps each partner contribute to the solution—not like a judge who passes a verdict.
Choosing mediation also keeps the matter private, protecting the company’s brand and reputation by not undermining public confidence in your operations.
- Arbitration
Arbitration is a procedure both parties approve that delivers a binding decision on disputes. A private dispute resolution can be advantageous because it comes with a timetable that can be controlled by the parties involved. In addition, there are no appeals.
Besides finality and speed, arbitration also offers other benefits. The proceedings are confidential matters, and the financial cost can be set beforehand, which turns an otherwise expensive unknown into a number that is predictable.
- Divide Company
One way to maximize a business relationship is to divide tasks and responsibilities among each partner based on their strengths and expertise. If one partner is stronger at marketing and sales, for example, then have that person concentrate on that area. This simple strategy allows the business partnership to create better results and efficiencies.
Well, the same can be said for breaking up the business partnership. If an impasse remains, dividing the company along the lines of each business partner’s existing responsibilities might make the most sense. It could allow each partner to start another venture with their “piece” or add their portion of operations to another business partnership so they retain a certain level of value.
Ideally, each partner should lay out this outcome in the business partnership agreement from the onset with guidance from their lawyer.
- Buy-Sell Options
The business partnership agreement should spell out several exit options, especially for 50/50 ventures. A buy-sell provision could be a preferred choice among the two partners. Essentially, it means one partner would buy out the other partner at fair market value. To accomplish this option, a third-party appraisal would be required from a professional who was agreed upon by both partners.
A challenge could occur if both partners want to buy out each other. This type of contingency would need to be documented in the business partnership agreement.
- Dissolve Business Partnership
If certain contingencies are not addressed at the onset of a business partnership agreement, such as what happens if both partners—or neither partner—want to buy out the other, then dissolving the partnership could be the last remaining option to end a 50/50 business relationship impasse.
Working with an attorney at the beginning of your business partnership would ensure that the agreement would be comprehensive so it would address—and therefore eliminate—many possible deadlocks and headaches before they happen.
What is a Partnership Business
Alliances are often created in the first place to capitalize on the skills, talents and relationships of others. A business partnership, for example, is an agreement between two partners or more with assets and liabilities on an ongoing venture.
Being part of a business partnership can create several advantages that an entrepreneur couldn’t do alone. For example, a partner can pool their time, talent and resources, fostering new thoughts and problem-solving approaches. In addition, partners can share the workload that matches their individual expertise to improve outcomes and efficiency.
These important details would need to be spelled out in a business partnership agreement to ensure everyone’s expectations are aligned. In fact, the business partnership agreement often turns out to be a make-or-break document, so don’t skimp. More substance upfront will only help support unity in the business partnership.
Partnership Business Examples
A general partnership is one of three common categories of business partnerships. Essentially, a general partnership means all the partners share financial and legal aspects equally, including debt for which each partner is personally accountable.
A limited liability partnership protects the partners from legal action. This type of business partnership, which is common among professional service providers such as doctors and accountants, limits legal exposure from one partner to another. So, if one partner is involved in a legal proceeding, the other partners are shielded from the outcome.
A limited partnership has one general partner personally liable for the business partnership’s debts and at least one silent partner with limited financial and legal liability based on the amount invested. Silent partners are not involved in the day-to-day management of operations.
Whether you are involved in a 50/50 business relationship or not, an impasse is bad for business. Move forward with invaluable counsel from your attorney.
(Joseph M. Pastore III is chairman of Pastore, a law firm that helps corporate and financial services clients find creative solutions to complex legal challenges. He can be reached at 203.658.8455 or jpastore@pastore.net
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