What To Do When “Equal Participation” Equals Deadlock

In Contracts by Joseph TurnerLeave a Comment

Absent language to the contrary in an Operating Agreement, “equal participation” means all partners have equal rights and authority to participate in the management of the business. This means each partner has one equal vote when it comes to decision making. Obviously, this can get tricky when you have an equal number of partners.

So, what do you do when you have a deadlock between the partners?

It’s really important to pay attention to the terms and language that is being used in an Operating Agreement. In some circumstances, having a “managing partner” designated means that partner can act as a tie-breaker. However, that title can be more related to that partner being the “hands-on partner” with the day to day operation of your business and the agreement does not actually give that person the power to break a tie. Let’s assume the language in an agreement isn’t clear on this point. To remedy the situation, all the Partners would need to agree to go to an arbitration, or amend the operating agreement itself, or dissolve the partnership altogether, heck, maybe even flip a coin! What is the best way to resolve an issue like this?

Ensure your Operating Agreement is clear from the outset.

Having an Attorney help you draft an Operating Agreement before any issues arise may seem unnecessary at the time, but, often, it will save you a great deal of headache and expense down the road.  Remember that agreements and contracts become important when there is discord.  Trying times are not the best conditions for trying to work out details or fill in the blanks that an ineffective operating agreement simply didn’t address.   Steer clear of generic template Operating Agreements because there is no such thing as one size fits all when it comes to how to manage a business.  

Ready to speak to an Attorney about your Operating Agreement?
Contact us or give us a call at 505.848.8581

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