We are frequently consulted by partners in companies where ownership is split 50-50. What seems so normal and natural — dividing participation equally — in most cases leads to a complex corporate dispute down the road.

The problem in these cases is that when differences arise and decisions need to be made, once the personal and business relationship has fractured, the company becomes frozen — what Americans call a “deadlock.”

The situation becomes even more complex when the two equal partners are husband and wife, or worse, an unmarried couple living together. Once the romantic relationship breaks down, the parties must also resolve the conflict within the company, which may be the primary source of family income.

When clients consult us before formalizing the company structure, the first thing we do is look for ways to discourage a 50-50 ownership split. For example, it is possible to set up a 51-49 ownership arrangement while distributing profits 50-50. The partner holding 51% could make day-to-day decisions, while requiring both partners’ votes for major decisions.

A key consideration in these situations is who manages and represents the company, since that person will be able to act on its behalf and bind it. If management and representation are shared jointly between both partners, the company’s daily operations may also become deadlocked.

If a 50-50 partnership is unavoidable, we recommend including a series of mechanisms in the company agreement to help prevent disputes: alternative deadlock-breaking arrangements through third parties, buy-sell options if the deadlock cannot be resolved, the possibility of company dissolution, a method for determining the sale or purchase price, and so on.

In summary: 50-50 companies should be avoided whenever possible, and if they are unavoidable, dispute resolution mechanisms should be built into the company agreement to prevent the company — and the relationship between partners — from becoming frozen.