Even Fifty Percent Owners Should Set Realistic Goals in a Business Dispute
If you are a 50 percent owner of a company but feel that your business partner treats you like a minority stakeholder, you are not alone. Many times, a 50 percent owner of a company will assume equal ownership means equal control. And it may. But prior, years-long patterns also matter. If you have been an absentee owner for years, it will be very difficult if you suddenly decide you want to be the one in charge – or at least have veto power over day-to-day decisions - and get a court to go along with it.
One client recently insisted that he had “fired” the other 50 percent owner, even though that owner had been running the company - alone - for more than 20 years. Then, he wanted me to enforce the termination. Obviously, as a half-owner, you have considerable rights. You have the right not to be oppressed or taken advantage of, including protection against unfair allocation of finances. In other words, the person in charge cannot take any money he wants, and any action he wants, and put you in a position where you can do nothing about it. (I have written about many of these situations in prior articles.) You have minority shareholder rights even as a half-owner.
As a 50 percent owner, you have more rights than if you owned as much as 49.9% of the business. For example, under some circumstances, you can ask the court to appoint a “provisional director” who would effectively serve as a tiebreaker on certain major issues. That provisional director will stand in for the court to learn the business and make an informed business decision based on what is best for the company, not any one shareholder. At least, this is the way it is supposed to work. Since courts do not like to fundamentally change, on their own, how a company is run, they appoint someone else to weigh in on certain issues if there is a voting deadlock between two co-equal owners. Remember – even if your partner has operational control, you have just as much voting power as he does. The key is to position it so that major issues are put to a vote.
But that is far different from thinking you can now change the status quo regarding operations. “I want to be in charge,” or “I want my partner out,” are goals that may be impossible to accomplish. This is especially the case if you have been out of the company - on the outside looking in - for years. The court may step in to make sure you are treated fairly, but it will likely not decide to change the entire management structure without an extremely compelling reason to do so. Even then, a court is still likely to appoint a “tiebreaker,” which then makes it your job to convince that person that a major, radical change in corporate structure is warranted and in the best interest of the company. If you have any questions about this post or any other related business law matters, please feel free to contact me at email@example.com.