Starting a business with someone can feel exciting.

You have an idea. You trust each other. You are building something together. Everyone understands what they are supposed to contribute, and no one expects the relationship to fall apart.

That may remain true for years.

But the best time to decide what happens when business owners disagree is while everyone still agrees.

Waiting until the relationship has deteriorated can turn questions that could have been negotiated thoughtfully at the beginning into expensive, emotional, and sometimes business-threatening problems.

“We Trust Each Other” Is Not the Same as Having an Agreement

An agreement between business owners is not necessarily a sign of distrust.

It is an opportunity to put the owners’ shared expectations into writing while they are still shared.

For a Virginia LLC, an operating agreement can address the company’s affairs, how the business will operate, and the relationship among its members. Virginia law also leaves a number of matters subject to the company’s operating agreement, which makes the document much more than paperwork to place in a corporate records folder. Virginia Law

Depending on the business structure, owners may use an operating agreement, shareholders’ agreement, partnership agreement, or other governing documents.

Whatever the document is called, the larger question is the same:

Have the owners actually agreed on how they are going to own and operate this business together?

Talk About the Uncomfortable Questions While Things Are Good

At the beginning, business partners are often focused on getting started.

That makes it easy to postpone conversations about what happens when circumstances change.

But an owners’ agreement can force conversations that are much easier to have before anyone is angry.

For example:

  • Who owns what percentage of the business?
  • What is each owner expected to contribute?
  • Who has authority to make day-to-day decisions?
  • Which major decisions require approval from both—or all—owners?
  • How will owners be compensated?
  • Can owners take distributions, and under what circumstances?
  • What happens if the owners disagree on an important decision?
  • Can an owner sell or transfer an interest?
  • What happens if someone wants to leave?
  • What happens if an owner stops contributing to the business?
  • What happens if an owner becomes incapacitated or dies?
  • How will an owner’s interest be valued if a buyout becomes necessary?

You do not need to expect any of these things to happen tomorrow to decide how they should be handled if they happen eventually.

50/50 Ownership Does Not Answer Every Question

Two owners may decide that splitting the company equally feels fair.

But 50/50 ownership does not automatically tell you what happens when the owners disagree.

Imagine two equal owners who cannot agree about taking on debt, entering a major contract, hiring someone, making a large purchase, or changing the direction of the company.

Neither owner necessarily has the votes to simply overrule the other.

An agreement can establish how decisions are made and create procedures for addressing deadlock before the owners are actually in one.

That conversation can feel unnecessary when everyone is getting along.

It becomes much more important when each owner is convinced that their position is the right one.

What If One Owner Wants Out?

Business relationships change.

An owner may receive another opportunity, move, retire, experience financial difficulties, lose interest in the business, or simply decide that the partnership is no longer working.

The remaining owners may have very different opinions about what should happen next.

Can the departing owner sell the interest to anyone?

Do the other owners get an opportunity to purchase it first?

How will the interest be valued?

Does the company have an obligation—or even the financial ability—to buy the owner out?

Virginia’s default LLC rules distinguish between transferring an economic interest and becoming entitled to participate in management, while allowing an operating agreement to establish different rules in many circumstances. Virginia Law

Those distinctions can become extremely important when an owner wants to leave.

Death and Incapacity Belong in the Conversation Too

An owners’ agreement should not only contemplate conflict.

Sometimes the relationship changes because something happens that nobody wanted.

If one owner dies, the surviving owner may suddenly be dealing with the deceased owner’s estate or successor. Under Virginia’s LLC statutes, death is generally an event causing a member’s dissociation, and the operating agreement can significantly affect what follows. Virginia Law

That creates questions worth addressing before a crisis:

Should the remaining owners have an opportunity to purchase the interest?

How will it be valued?

What happens to management?

How does the business plan coordinate with each owner’s estate plan?

The same type of planning can matter if an owner becomes unable to participate in the business because of incapacity.

Do Not Wait Until You Need the Agreement

When business owners are already fighting, negotiating becomes harder.

Every provision may suddenly have financial consequences. Every proposed term may be viewed through the lens of the existing dispute. Something that might have felt reasonable three years earlier can feel completely unacceptable when one person believes the other has wronged them.

That is the predicament an agreement can help avoid.

The point is not to predict every possible disagreement.

It is to create enough structure that the owners are not forced to invent the rules while they are already fighting about the outcome.

Good Relationships Still Deserve Good Documents

You may trust your business partner completely.

You may have been friends for twenty years.

You may be siblings.

You may never have a serious disagreement.

Hopefully, you don’t.

But a strong relationship and a thoughtful owners’ agreement are not competing ideas. In many ways, putting expectations into writing can protect the relationship by reducing the number of important issues left to assumption.

Everything may be wonderful when you start the business—and it may stay that way. But if the relationship does deteriorate, that is usually the worst time to begin negotiating the rules of the relationship.

Having those conversations while everyone is still sitting on the same side of the table can give the business a stronger foundation for whatever comes next.

Building a Business With Someone Else?

Basis Law PLLC assists Virginia entrepreneurs and business owners with operating agreements, governing documents, contracts, and other business law matters.

Schedule a consultation to discuss the legal foundation of your business and whether your existing agreements reflect how you actually intend to operate together.

This article is provided for general informational and educational purposes only and does not constitute legal advice. The rights and obligations of business owners depend on the entity structure, governing documents, facts, and applicable law. Reading this article, visiting this website, contacting Basis Law PLLC, or scheduling a consultation does not create an attorney-client relationship. Representation requires a written engagement agreement with Basis Law PLLC.

Informational notice: This resource is provided for general informational purposes only and is not legal or tax advice. Reading this article, contacting Basis Law PLLC, or submitting information does not create an attorney-client relationship. Legal outcomes and procedural options depend on the specific facts and applicable law.