Business Partners in a Stalemate? Try Russian Roulette

Here's a situation that is all too common. 

We were approached by a prospective client who owned 50% of a private business. He handled the delivery of the services. The other co-owner - who handled the books - unilaterally decided not to pay their counterpart the agreed-upon salary. Without his expected salary, he would have to find other work to pay his bills. So services weren't being rendered, and the business was under threat.

Suffice it to say that the two owners had reached a stalemate. Now what?

The co-owner handling the books offered our potential client $2,000 for his 50% interest in the business, which was making $200,000 annually. The offer seemed light.

I suggested they first agree to hire an appraiser and get a valuation for the business. Then, the co-owner who controlled the books would have 60 days to close the purchase of the other 50% of the business at the appraised value. If no move is made, the other partner could be given the same 60 days to make that same purchase. If after 120 days neither owner bought out the other at the appraised value, the business could be put on the market and sold to the highest bidder.

But depending on the individuals and the situation, even this measured approach might not solve the problem. In dramatic scenarios like this one, you sometimes need to use a strong but simple method, and I've seen a Russian-Roulette style approach to be effective in breaking a stalemate. By their agreement to this method, each owner assigns their own subjective value to the business. Those sums are compared and whichever owner places a higher value on the business then has the obligation to buy out the other owner at that valuation. It's a quick and fairly painless effort, with no appraiser needed and in which the participants set the parameter. 

With this solution, the business is then owned by the individual who values it more. And in the end, that's probably in everyone's best interests.

High Stakes Maneuvers and Sound Legal Advice

At Calkins Law we know that business relationships don't always pass the test of time. But bowing out gracefully isn't everyone's idea of walking away. In situations like these, you need steely nerve and a strong partner to see you through. We're up to that task. So if you're looking for a legal advisor with fresh ideas and inventive solutions at the ready, reach out to learn more.