When you and your partner each own half of a business, one disagreement can leave neither of you able to make a key decision while operations stall. Your original agreement, a private dispute process or California law may offer a way to break that standoff.
Seeking dissolution in court
California law allows a 50% corporate shareholder to seek judicial dissolution when statutory grounds for deadlock exist. An LLC member may also petition over management deadlock, although owners holding 50% of its voting interests may vote to dissolve unless the governing documents require more.
Your partner can stop that process by buying your share for cash and, if the two of you cannot agree on a price, may ask the judge to set it. Once that owner posts a bond to cover your potential costs, including attorney fees, the court appoints three neutral appraisers. For an LLC, they use fair market value, while a corporation’s fair value considers liquidation value and the potential sale of the business as a going concern.
Resolving disputes outside court
In mediation, a neutral third party helps you and your partner work toward a buyout or a new direction, but neither of you has to accept a proposed settlement. California law generally keeps those talks confidential, so an offer or concession made there usually cannot be used as evidence in a later lawsuit or similar proceeding.
Binding arbitration works differently, since the decision-maker hears both sides and issues a final award that a judge can set aside only on narrow grounds. Your operating or shareholder agreement may require mediation before anyone sues or route certain disputes to this private process. If that document contains an enforceable arbitration provision covering the conflict, a court will generally send the matter there and pause court proceedings on the same issues when either partner asks.
Using written terms to guide a buyout
A buy-sell provision can spell out which events let one owner purchase the other’s interest, how to calculate the price and when payments are due. Settling those terms while you and your partner still cooperate leaves fewer open questions if the relationship breaks down.
Some agreements also include a shotgun clause, in which one partner names a price and the other must decide whether to buy or sell at that amount. Because whoever makes the offer could end up on either side of the deal, that person has every reason to keep the figure fair.
Without an agreed process, you may need to negotiate your exit or seek dissolution. If the other owner elects to buy you out and you cannot settle on a number, the court could oversee the valuation.
Pursuing remedies for a deadlock
Start with any deadlock or buyout procedure in your agreement, including its notice requirements. You can also request company records in writing for a purpose reasonably related to your ownership interest. An independent appraiser can use those documents to value your share.
A demand letter or mediation proposal can document settlement efforts, but complete any steps your agreement requires before going to court. An attorney can seek dissolution on valid grounds and request a receiver if company assets are at risk. For an evenly split corporate board, a judge may appoint an impartial provisional director if the deadlock harms operations or threatens property.
