It’s a well-known fact that most start-up businesses fail within their first two years of operation. Most commonly, the businesses simply fail to generate enough revenue to cover their expenses, and the owners fold because they cannot generate the profits they need to continue forward. However, the second-most common reason for small business failures may come as a surprise: the owners can’t agree on how to run the business.
There are distinct advantages to going into business with a partner: Varying skill sets can address a multitude of business needs that a single owner might not be able to provide. By partnering, you effectively double your business’s capacity for work, and there’s always a back up plan for when one of you can’t be running the front lines. However, there’s also an inherit risk involved where multiple owners come together: The risk that a fundamental disagreement could arise regarding how the business should run.
When two business partners disagree, and emotions become involved, relationships can become so strained that it hinders the business substantially, and can threaten it’s very survival. This situation is known as “deadlock.” For example, as the business achieves success, one owner might want to take a more passive role and begin working less while turning management over to an employee, whereas the other owner might believe they should both continue working full time, every day. The working owner is going to resent that he’s working every day for the same exact income as his partner.
Such disputes can wreak havoc on a business. A scenario much like the one above played out in a case our law firm handled. To resolve the dispute, each business owner spent in excess of six figures in lawyers’ fees in order to work the dispute out. Ultimately, the Court had to appoint a receiver to manage the affairs of the company while the owners continued to work out their deadlock through the expensive and time-consuming litigation process.
At Asheville Legal, our business attorneys have the skill and expertise to guide your small business dispute through the litigation process and to resolution. We know the ins and outs of North Carolina’s court systems when it comes to corporate law, limited liability law, and the many obscure tactical twists that a business case can take.
However, we always encourage our clients to get the ounce of prevention they need early so that they don’t have to spend a pound on such an extreme cure later. We can also draft careful business operating agreements that carefully and clearly spell out the rights and obligations of each owner to the Company and each other to help avoid the creation of such a dispute.