How to Handle Disputes in a 50/50 Partnership

A 50/50 partnership is a convenient way to start a company, because capital is split down the middle and so are expenses. However, when disputes arise about a corporate decision, a deadlock can hinder progress and stall productivity. At Macmillan Lawyers and Advisors, we mediate these challenging situations, helping you and your partner reach a consensus.   

In Australia, there are over 2.6 million actively trading businesses as of June 2024. While the prevalence of 50/50 partnerships is not quantified, they are a significant part of business structures, particularly in smaller entities where equal decision-making is essential. There are many advantages to this structure, but it also comes with some risks, such as: 

• Deadlocks in disputes
• Questions of accountability between partners
• Personal conflicts between partners
• Unequal contributions in capital or expenses
• Selling or transferring shares

In this article, we’ll cover the best strategies for overcoming these risks, and reaching an agreement when disputes arise in a 50/50 partnership.

Key Takeaways

• 50/50 partnership disputes can be common due to equal shareholder control and differing management styles.
• Numerous contract clauses can prevent 50/50 partnership disputes.
• Mediation or arbitration occurs when a neutral third party helps to resolve disputes in a 50/50 split.
• Exit strategies are valuable provisions for when disputes cannot be resolved. 

How to Prevent Shareholder Disputes in a 50/50 Split

To prevent shareholder disputes in a 50/50 split, a clear agreement must be drawn up between the two parties. This contract should contain strategies for how disputes must be handled if there’s a deadlock in decision-making. It should also have a clear exit strategy for either partner if one wants to sell or transfer ownership to the other. 

Roles, Responsibilities, and Expectations

A 50/50 partnership agreement should clearly state what the roles of each partner are. For example, if decision-making is the responsibility of one partner, then the other partner must concede to decisions taken by the first. Stating roles, responsibilities, and expectations clearly in a 50/50 partnership contract can preemptively prevent disputes.  

Specific Clauses for Dispute Resolution

Every 50/50 partnership must contain strategies for dealing with disputes. Both parties should also commit to following these procedures if they disagree about an important decision in the business. 

The professionals at Macmillan Lawyers and Advisors can help you with mediation and arbitration steps. Mediation is always the best place to start, but if a resolution cannot be reached, arbitration is a good way to solidify a decision. 

Third-Party Provisions

Provisions for appointing third-party decision makers can also be added to a 50/50 partnership business agreement. These may include:

• New Partner Admission that defines whether third parties can become partners and under what conditions.
• Hiring Authority that clarifies whether one partner has independent authority to hire employees, contractors, or consultants.
• Financial Guarantees that state whether the business can take on loans or credit in the name of the partnership without unanimous consent.

Exit Strategies

An exit strategy states the condition under which one of the partners can sell their half of the shares to the other, or an outside party. It’s definitely worthwhile to include this in your partnership agreement so that disputes don’t lead to legal battles if a dispute cannot be resolved. 

How to Manage Deadlocks in a 50/50 Partnership

To manage deadlocks in a 50/50 when preventative measures have failed, the following steps can be taken until a resolution is reached:

1. Consult your board of advisors
2. Hire a professional mediator
3. Appoint an arbitrator
4. Reach a buy-out agreement
5. Dissolve the business
6. Go to court (last resort)

This order of action may save you on legal costs, but if all else fails, you may be forced to resolve the decision in court. This is not a common outcome when all other attempts in the below list have been tried. If one fails, try the next, and so on.