12 Warning Signs You're Headed for a Lawsuit with Your Partner-Part 6

Welcome to Part 6 in a 12-part series entitled "12 Warning Signs You're Headed for a Lawsuit with Your Partner".  If you missed Parts 1-5, click here to get to our Real Estate Investor bLAWg where you can find those and any many other informative blog posts.  The sixth warning sign is ...

#6: No tie-breaker mechanism

If your venture is made up of just two partners and you each have a 50% vote on all issues, big and small, there is the potential of deadlock.  What happens if you just cannot agree?  On a minor issue, you might be able to avoid a serious dispute.  The bigger the issue, the more likely it is that you will end up in a lawsuit.  Solution: Try to agree that one of you ultimately has control on "major" decisions (like when to sell, what price to accept on a sale, when to refi, the amount of the refi, and other "big" decisions; when we work with our clients, we identify all the "big" decisions that are common to most partnerships plus we determine what additional "big" decisions may be unique to their particular business).  Usually, that "major" decision-maker is the person who has the most hard dollars in the deal. If that is not possible, consider agreeing upon a neutral third party at the beginning of the venture, when you are drafting the agreement, to be the tie-breaker vote and make that vote binding.  Regardless of how you resolve this dispute, you should ALWAYS include a mandatory mediation clause in your agreement from the very beginning.  

If you are entering a partner relationship of any kind, whether it is an LLC, corporation, general or limited partnership, call us.  We can set it up to minimize the risk of future disputes.  If you are having challenges with a current partner, call us.  We may be able to help you resolve your dispute and avoid a lawsuit.  If litigation with your partner is inevitable, we can handle that as well.  If you're not sure if your agreement is properly drafted to minimize your risks of future dispute and/or to adequately protect you in the event of a future  disagreement, call or e-mail us to learn about our special "Partnership Agreement Audit" offer.  For more information, call Jeff Lerman at 415-454-0455 x234 or e-mail him at jeff@lermanlaw.com.