By Yoel Molina, Esq., Owner and Operator of the Law Office of Yoel Molina, P.A.

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Yoel Molina, Esq.

50/50 Partners in a Florida LLC: How to Avoid a Deadlock that Paralyzes the Business

Two partners. Each has 50%. Both worked to build the company. Everything works as long as they agree.

Until they stop agreeing.

One wants to hire a manager. The other opposes. One wants to reinvest profits. The other wants to distribute them. One wants to accept an offer to sell the company. The other thinks it can still grow.

When both have the same decision-making power, neither can unilaterally impose their position.

This scenario is commonly known as a deadlock between partners. For a Florida LLC, the issue is not simply that a disagreement exists. The risk arises when the company’s governance structure does not provide an adequate mechanism to address that disagreement.

If an LLC is owned 50/50 by two partners, its operating agreement can play a crucial role in defining who has authority to make certain decisions, which require the consent of both, what procedure will be used in the event of a tie, and what exit mechanisms will be available.

Waiting until the relationship between the owners has deteriorated can turn a corporate governance issue into a much more costly and damaging dispute for the operation.

Notice:This article provides general educational information and does not constitute legal advice for a specific situation.

Why a 50/50 Structure Can Work… and Also Block a Business

Dividing a business equally may seem fair. Each founder brings capital, labor, business relationships, experience, or knowledge, and both want to be protected from unilateral control by the other.

The problem can arise when economic equality also means absolute equality in decision-making power and there is no clear rule for resolving a tie.

A growing business needs to make decisions constantly: hiring or firing key staff, taking on debt, purchasing vehicles or equipment, signing leases, accepting major contracts, changing prices, opening a second location, starting or resolving litigation, acquiring another company, or selling assets.

If certain important decisions require unanimity and the two owners are at odds, the company may find itself unable to act.

For Spanish-speaking entrepreneurs in Miami, South Florida, and Greater Orlando, this issue can be particularly relevant in companies with multiple employees, work teams, business contracts, vehicles, regulatory licenses, significant accounts receivable, or expansion plans.

As a company grows, the importance of having clear rules about authority, decision-making, and conflict resolution also increases.

The Operating Agreement is a Central Piece of LLC Governance

In simple terms, the operating agreement is the internal contract that establishes many of the rules on how an LLC will operate and how its members will interact.

Florida's LLC Act, contained in Chapter 605 of the Florida Statutes, recognizes a broad role for the operating agreement to regulate, among other things, the relationships between members, certain rights and duties, the activities and affairs of the company, and certain management rules.

However, that contractual freedom is not unlimited. The law also contains provisions that an operating agreement cannot eliminate or modify in certain ways.

For that reason, a good agreement should not simply state that each partner owns 50%.

It should address real operational questions.

Who manages the day-to-day?

Two partners can have the same economic stake without necessarily having to approve every daily decision together.

For example, a construction company could assign one partner the primary responsibility for operations and projects, while the other handles finances and business development.

A logistics company could divide responsibilities among fleet operations, sales, contracts, and administration.

The key is to define authority rather than assume everyone understands who can do what.

The agreement can also set limits.

For example, a certain person might have the authority to approve ordinary expenses up to a certain amount, while new debt, a personal guarantee, the purchase of significant assets, or a contract outside the ordinary course of business might require additional approval.

What decisions should require the approval of both?

Some decisions may warrant special protection for both owners.

Depending on the business and its structure, they could include:

• admitting a new member;

• selling a substantial part of the company's assets;

• merging or selling the business;

• taking on debt above an agreed limit;

• granting certain guarantees;

• modifying ownership percentages;

• making extraordinary distributions;

• modifying the operating agreement;

• engaging in certain significant transactions with related parties.

There is not necessarily a universal list that is appropriate for all companies.

Reserved decisions should be analyzed considering the actual operation of the business. A generic template may not precisely address the situation that later creates a conflict.

What exactly is a deadlock?

Not every disagreement between partners constitutes a deadlock.

Owners may have differing opinions on marketing, employees, suppliers, or strategy and still continue to operate.

The issue becomes more serious when owners cannot approve a decision required by the company's governance structure and the tie starts to materially affect the company's activities and affairs.

Hypothetical example

Two partners own a commercial cleaning company in Orlando. Each has 50%.

The company receives the opportunity to sign a major contract with a hotel group, but to fulfill it, it needs to hire additional staff and finance new equipment.

One partner wants to seize the opportunity. The other believes the financial risk is too high.

The operating agreement requires the approval of both to incur certain debts and enter contracts above a certain value, but does not establish a clear procedure for addressing a tie.

The problem is no longer simply a difference of opinion.

The business could miss a commercial opportunity because its governance structure does not specify what procedure to follow when owners cannot reach an agreement.

Five mechanisms that can help reduce the risk of deadlock

There is no universal clause suitable for all LLCs.

However, depending on the circumstances, there are various mechanisms that can be considered when preparing or updating an operating agreement.

1. Escalation and formal negotiation

The agreement may establish a formal procedure for owners to meet within a certain timeframe after a deadlock arises.

This may seem straightforward, but it forces a clear identification of the disputed issue and can prevent months of informal frustration from replacing structured negotiation.

The procedure may also establish who should participate, what information should be exchanged, and how much time the parties will have to try to reach a solution.

2. Mediation

Partners may agree to attempt mediation before initiating certain litigations or activating specific exit mechanisms.

A neutral mediator generally does not decide who wins or loses. Their role is to help the parties explore possible solutions.

When there is a viable business but the relationship between the owners has deteriorated, addressing the conflict early can help prevent the dispute from unnecessarily affecting the value and operations of the company.

3. An independent third party or limited tiebreaker mechanism

For certain matters, owners may consider a procedure involving an independent third party when there is a tie.

This type of mechanism must be carefully designed.

Granting excessively broad power to an outside person can create new problems. A limited mechanism may be more appropriate when it applies only to clearly defined categories and there are adequate rules regarding authority and conflicts of interest.

4. Buy-sell: a process to buy or sell a stake

An operating agreement may include a buy-sell provision—often referred to as a buy-sell clause—that establishes a procedure for, under certain circumstances, one owner to buy the other’s interest.

Details are important.

Among other issues, the agreement may need to establish:

• what event triggers the procedure;

• how it starts;

• how the value of the interest is determined;

• who performs the valuation;

• how differences between valuations will be resolved;

• how the purchase will be financed;

• how much should be paid initially;

• there will be installment payments;

• what happens with loans between partners and the company;

• what happens with personal guarantees;

• what happens if the buyer defaults.

A poorly designed purchase clause can create as many problems as the absence of a clause.

5. Sale of the company or another structured exit

Under certain circumstances, if neither owner can or wants to buy the other's share, the agreement may provide for other exit procedures, which could include a sale of the business or certain assets.

The goal of planning these mechanisms in advance is to avoid having the only strategy available when a conflict arises be to initiate litigation and wait for the outcome.

Valuation can become one of the biggest problems

Imagine that an agreement simply states:

"If a partner leaves, the other may buy their share at its fair market value."

The phrase seems reasonable.

But how is that value determined in practice?

Among the questions that may arise are:

• Who selects the professional who will perform the valuation?

• Will a single appraiser be used or more than one?

• What happens if the valuations are significantly different?

• How is the company's debt considered?

• How are accounts receivable treated?

• How is intangible value or goodwill considered?

• How are owner loans to the business handled?

• What happens if one of the partners generates a significant portion of sales or customer relationships?

A useful agreement should attempt to convert general concepts into procedures that can be applied when necessary.

Payment capacity should also be considered.

A share may have considerable value, but the buying partner may not have enough cash available to pay everything immediately.

Therefore, depending on the transaction, issues such as the down payment, installment payments, interest, guarantees, and consequences of default may be relevant.

Don't forget personal guarantees

This point may be especially important.

Assume both owners personally guaranteed a commercial lease, a line of credit, or vehicle financing.

Subsequently, one sells their 50% share to the other.

The transfer of their interest in the LLC does not necessarily mean that person is released from an obligation they directly assumed to a bank, landlord, or other third party.

A well-structured exit should identify existing guarantees and address what steps should be attempted to obtain a release, refinance an obligation, or replace a guarantor when appropriate.

An agreement between partners, by itself, does not necessarily obligate an external creditor to release a guarantee that person directly assumed.

Events that should be considered before a dispute arises

A deadlock is just one of the events that can significantly alter a business partnership.

An operating agreement may also need to address what happens if an owner:

• passes away;

• becomes incapacitated;

• goes through certain personal circumstances that affect their participation;

• declares bankruptcy;

• ceases to actively work in the company;

• loses an essential professional license;

• starts competing with the business;

• attempts to transfer their share to a third party;

• incurs certain breaches of their obligations;

• wants to withdraw while the other owner wishes to continue.

In regulated industries, there may be additional considerations.

For example, a construction company may depend on a qualifying agent; certain health businesses may be subject to special licensing, ownership, or control requirements; and a professional firm may depend on certain credentials.

In those cases, any strategy related to changes in ownership or control must also be analyzed in light of applicable regulatory requirements.

What can happen if there is no contractual solution?

When governing documents do not provide an adequate solution, owners may end up relying on emergency negotiations, litigation, and the remedies available under applicable law.

Florida law establishes circumstances under which a member or manager may judicially request the dissolution of an LLC.

Among the situations contemplated by the law are certain cases of deadlock in the management of the company's activities and affairs, when members cannot break the deadlock and there is a threat or situation of irreparable harm to the LLC.

This does not mean that any disagreement between two 50% partners automatically allows for judicial dissolution.

The availability of that remedy depends on the specific facts, the documents governing the company, and the applicable law.

Moreover, Florida law acknowledges the relevance that certain contractual provisions designed to resolve a deadlock may have, including certain sale provisions related to a deadlock.

Therefore, judicial dissolution should not be considered the ordinary mechanism for governing a healthy business. It is a serious remedy whose analysis depends on particular circumstances.

For a business owner, the practical consequence is significant: failing to establish rules to address a deadlock does not make the problem disappear.

It may mean that when the conflict escalates, the available options could be more costly and that a court may end up playing a significant role in the future of the company.

Common mistakes among 50/50 partners

"We are family; we don’t need such a detailed agreement"

Family relationships do not eliminate business disagreements.

In fact, a business conflict can spill over into the personal relationship when expectations, responsibilities, and exit mechanisms were never clearly documented.

"We’ll resolve it when it happens"

When the conflict already exists, each partner may negotiate from a different economic and personal position.

It can be much more difficult to agree on an exit mechanism when the parties already know who might benefit or be harmed immediately by each alternative.

"We have an operating agreement we found online"

A template can provide a starting point, but it does not necessarily reflect how a particular business actually operates.

It may not adequately address who contributes what, who has authority to sign certain contracts, what decisions require joint approval, what happens with an essential license, or how an ownership interest should be valued.

"50/50 means everything must be decided together"

Not necessarily.

Economic ownership and administrative authority are related concepts, but not identical.

The governance structure can allocate certain responsibilities and reserve only specific decisions for joint approval, always in accordance with the company’s documents and applicable law.

"If I buy my partner’s share, the problem ends"

Not always.

After a purchase, there may be issues related to loans, guarantees, intellectual property, access to accounts, client relationships, equipment, documents, confidentiality, and contracts that may require consent to be transferred.

An effective exit requires analyzing more than just the ownership percentage.

What to review before bringing in a partner

Before giving away 50% of a business, consider clearly answering questions like these:

• What does each person contribute: money, work, clients, licenses, intellectual property, business relationships, or other assets?

• Will the LLC be managed by its members (member-managed) or by one or more managers (manager-managed)?

• Who can sign contracts and up to what limit?

• What decisions require unanimity?

• What procedure will be used when there is a tie?

• When can a partner sell or transfer their interest?

• Is there a right of first refusal or another similar mechanism?

• How will the value of an interest be determined?

• How will a potential purchase be financed?

• What happens with personal guarantees and loans from the partners?

• What if an owner stops working in the company but retains their interest?

• What happens in the event of death, incapacity, or loss of an essential license?

• What financial information should each owner receive?

• How will conflicts of interest and transactions with related parties be handled?

• What procedure will be followed before initiating certain litigations?

Not all businesses need the same answers.

But a 50/50 partnership should clearly understand what its rules are before a dispute arises.

What this means for your business

If your LLC already has two owners at 50%, you don’t necessarily have to wait for a crisis to review your structure.

You can start by gathering important documents, including:

• the operating agreement;

• the articles of organization;

• resolutions;

• capital contribution records;

• loan agreements between the owners and the company;

• documents related to ownership rights;

• documents establishing authority to make decisions.

Then, compare what those documents say with how the company actually operates.

Ask yourself:

Does our agreement describe the company we have today or the company we had when we started?

A company that now has 20 employees, several vehicles, institutional contracts, and significant financial obligations may need different governance rules than those informally used by its two founders when they worked alone.

When to consider a review with a business attorney

It may be wise to review the legal structure and governance documents before:

• adding a new partner;

• modifying ownership percentages;

• granting equity to a key employee;

• taking on significant debt;

• opening a second location;

• buying another company;

• accepting an investment;

• selling the business;

• modifying the roles of the founders;

• making significant changes to management;

• or when the owners are already experiencing recurring disagreements.

An early review allows focusing on the structure and available alternatives.

When the conflict has already escalated, the options may involve pre-litigation negotiation or formal litigation.

Frequently Asked Questions

Is it a bad idea to have a 50/50 LLC in Florida?

Not necessarily.

A 50/50 structure can work when the roles, authority, and mechanisms for addressing disagreements are clearly defined.

The risk may increase when certain decisions require the approval of both owners and there is no proper procedure to address a tie.

Can a partner who owns 50% force the other to sell?

It should not be assumed that an owner automatically has a unilateral right to force the other to sell just because they own 50%.

The answer depends, among other things, on the operating agreement, other applicable contracts, the specific facts, and the relevant law.

What is a buy-sell clause?

A buy-sell clause is a contractual provision that establishes a procedure for the purchase or sale of an owner’s interest when a certain event occurs.

Such a provision may need to address the events that trigger the procedure, valuation, financing, timelines, and other aspects of the transaction.

Can a judge dissolve a Florida LLC due to a conflict between partners?

Florida law establishes specific circumstances under which judicial dissolution of an LLC may be requested.

These include certain cases of deadlock in the management of the company’s activities and affairs when members cannot break the deadlock and there is a threat of irreparable harm to the LLC.

However, a simple disagreement between partners does not automatically mean that judicial dissolution is warranted. The analysis depends on the facts, the company documents, and the applicable law.

Should I wait for a conflict to modify the operating agreement?

Not necessarily.

It may be more practical to review the governance rules while the owners can still discuss and negotiate alternatives without being in the midst of an active conflict.

Any modification must be made in accordance with the existing agreement and applicable law.

Conclusion

The issue with a 50/50 partnership is not necessarily equality.

The problem may be the absence of a plan to handle disagreement.

An operating agreement can establish rules on daily authority, reserved decisions, procedures to address a deadlock, and exit mechanisms, subject to provisions of Florida law that cannot be contractually modified.

If your company in Florida has two or more owners and your documents no longer reflect how the business currently operates, reviewing the operating agreement and governance structure can help identify potential gaps before they become a dispute.

For information about Mola Law's business legal services, you can contact admin@molaoffice.com or call 305-548-5020, option 1.

Schedule your consultation: https://hi.switchy.io/o2Eh
 

Legal notice: This content is for general educational and informational purposes. It does not constitute legal advice for any particular situation and does not create an attorney-client relationship. Laws and their interpretation may change, and the application of the law depends on the specific facts of each situation.

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