If you co-own a business, you and the other owners will likely disagree from time to time. Different views on finances, operations or growth are common and do not always create serious problems.
Some disagreements become more difficult when the owners cannot reach a decision on important business matters. In a closely held company, especially one with equal ownership stakes, that type of impasse can affect daily operations and make it harder for the company to act on important decisions.
What does a business deadlock look like?
A business deadlock occurs when you and the other owners cannot agree on decisions that the company needs in order to operate or pursue its goals. Common signs of a deadlock include:
- Reaching tie votes on major company decisions
- Disputing authority over management responsibilities
- Disagreeing about business expansion or investments
- Arguing over profit distributions
- Delaying approval of budgets or major expenditures
- Refusing to participate in decision-making
The effects of a deadlock can extend throughout the company. Unresolved disagreements may affect hiring decisions, financing opportunities and other activities that require owner approval.
Options for resolving a business deadlock
Several methods may resolve a deadlock without ending the business relationship. Common approaches include:
- Participating in direct negotiations
- Using mediation with a neutral third party
- Pursuing arbitration under an existing agreement
- Applying buy-sell provisions in company agreements
- Purchasing another owner’s interest
- Reallocating management responsibilities
The options available in your situation may depend on the company’s ownership structure, governing documents and the nature of the dispute. Some approaches focus on preserving the existing ownership arrangement, while others result in one owner leaving the business.
When court intervention may become necessary
Some deadlocks lead to litigation when owners cannot resolve disputes through other means. Court proceedings may involve issues related to shareholder rights, ownership interests, fiduciary duties or allegations of misconduct.
Depending on the circumstances, a court may address disputes over company management, appoint a neutral party to assist with operations or consider requests for business dissolution. The outcome will depend on the facts of the dispute and the applicable law.
When owners can no longer agree
Disagreements are common in business. However, when owners can no longer agree on key business decisions, the dispute may affect more than the ownership group.
In many closely held companies, the central issue is not the disagreement itself but whether the owners have a process for addressing an impasse when one occurs.