Business partnerships can sometimes hit a rocky patch. Disagreements are an inevitable part of running a business – and while most disagreements can be solved with open communication and mutual understanding – there are instances when partners cannot find common ground. In these situations, it is critical to have a well-drafted business agreement (operating agreement, bylaws, or partnership agreement, depending on the type of business you have) that clearly outlines each partner’s rights and responsibilities.
Question: Who has the final say?
Imagine your company, Waco Software Solutions, is a promising tech startup founded by two friends, Sam, and Alex. Sam is an expert developer with years of experience in software development, while Alex has built his expertise around marketing systems that just flat work and has an extensive network and knack for business development. Their complementary skills have made Waco Software Solutions a successful venture 2 years in.
And then it happens…
As the business begins to scale, the two partners encounter a massive disagreement. A large client has requested a substantial customization of the product, which COULD be very profitable for the company.
Sam, believing in the scalability and uniformity of their product, strongly disagrees with customizing their product for one client, no matter how large. Alex, on the other hand, sees a unique opportunity to expand and wants to proceed with the customization.
They have numerous discussions, each presenting their points of view, but they cannot reach a consensus. As co-founders with equal ownership interests and voting rights, there is no overriding authority defined in their partnership agreement.
As you can see, a disagreement like this will stall your company’s progress. Your clients are now waiting for a response, team members are uncertain, and the work atmosphere is strained, not to mention the relationship dynamic between you and your business partner at the top.
You may have heard the quote: “An ounce of prevention is worth a pound of cure.” That is 100% the case in business. A well-drafted operating agreement contains clearly defined operating guidelines. It may specify who holds the final decision-making authority in a situation like this, it may provide that the character of the business (scalable or customized) may not be changed except in certain instances, it may provide for a mechanism for one partner to buy out the other or sell and leave the business, or it may outline a dispute resolution process for such scenarios.
We all know from firsthand experience that disputes and even differences of opinion are common in businesses. Do your company documents adequately address owner disputes? Not all agreements are created equally. A well-drafted agreement can prevent the stalling of business operations, salvage relationships, and handle potential legal complications before it ever gets to this level.
Whether you are just starting your business and need an operating agreement or have existing agreements already in place that need adjustments, we are here to help your business run smoothly. Give us a call at (254) 300-7909 and let us help you prevent business ownership stalemates.