Addressing Disagreements Among Co-Owners

When you co-own a business, you likely don’t go into it thinking, “One day, we may loathe each other.” But over time, goals, ambitions and the economy itself can change, creating strife among co-owners. And it becomes hard, if not impossible, to solve major business issues when you’re in the midst of a disagreement with co-owners. 

Let’s look at a process that can help you prepare yourself, your co-owners and your business for potential disagreements. 

1. Get Out In Front Of It 

The best time to plan for how you’ll approach a major disagreement is before you have the disagreement. 

Say you equally co-own a business with two other partners. You have the same general goals and ideas for what you want the business to achieve. Now is a good time to plan for events that may cause disagreements in the future. The goal is to make decisions while you’re in a collaborative mindset so you can remain clear-headed about disagreements that could crop up.  

For instance, you might propose a scenario where a co-owner wants to cash out of the business early to start their own business. You and your advisor team can begin to lay ground rules for what that might look like, such as inserting a non-compete provision in your Buy-Sell Agreement.

2. Keep Your Buy-Sell Agreement Current 

When disagreements arise among co-owners, a common strategy is a buyout. In some cases, your Buy-Sell Agreement may state the conditions of a buyout, such as a Texas Shootout provision. 

In a Texas Shootout provision, one co-owner may offer to buy out another co-owner. If the second refuses the buyout, then the second co-owner must offer to buy out the first co-owner at the same price, terms and conditions of the original offer, with the goal of leaving just one co-owner in charge. 

However, an outdated Buy-Sell Agreement can cause all sorts of issues with such a scenario. Inapplicable business valuations, a change in financial security requirements and countless other calculations could cause issues.  

Keeping your Buy-Sell Agreement current could help make implementing a solution for a co-ownership disagreement run more smoothly (e.g., less litigation).

3. If All Else Fails, You May Need To Cut Bait And Start Over 

In some cases, when a co-ownership situation is untenable and no one is willing to work toward a solution, business dissolution could be an option. 

For many business owners, this solution is unthinkable, especially if the business has grown in value over the years. It can be time-consuming, expensive and make achieving your financial goals much more challenging. 

While this option is generally a last resort, it’s not always a necessity. With proper planning, you can better position yourself to avoid reaching this worst-case scenario.