50/50 stalemates, blocked decisions, and uncooperative co-owners.
When business partners reach an impasse - whether a 50/50 deadlock or a co-owner who simply won't respond - the business suffers. A well-crafted letter can break the logjam by presenting clear options and consequences.
Common deadlock triggers: Disagreement over sale/exit, one partner blocking lease renewals or financing, refusal to approve essential contracts, disputes over capital calls, stalemates on hiring/firing key employees.
Legal Framework
Judicial Dissolution
California Corporations Code § 1800(b)(2): Shareholders may petition for dissolution when directors or those in control engage in persistent fraud, mismanagement, or when liquidation is reasonably necessary to protect shareholder interests.
California Corporations Code § 17707.03 (LLCs): A court may decree dissolution when it is not reasonably practicable to carry on the business in conformity with the LLC operating agreement.
Resolution Options
Option
What It Means
Pros
Cons
Buyout (You Buy)
Purchase partner's interest at negotiated price
You keep the business, certainty
Requires capital, assumes continued viability
Sellout (They Buy)
Partner purchases your interest
Clean exit, immediate liquidity
May receive less than true value, lose upside
Third-Party Sale
Jointly market and sell the entire business
Market price, neutral outcome
Requires cooperation, may take time
Wind Down
Orderly liquidation, distribute proceeds
Definitive end, pro-rata distribution
Destroys going-concern value, may harm employees/customers
Meeting minutes and communications documenting the impasse
Emails or letters showing non-responsiveness
Financial impact of the deadlock (lost opportunities, looming deadlines)
Third-party contracts or leases requiring action
Demand Letter Structure
1. Neutral Statement of the Problem
"As you know, [Company] is currently facing a critical decision regarding [specific issue - e.g., renewal of our office lease, which expires on March 31, 2025]. Despite my attempts to schedule a meeting and resolve this matter, we have been unable to reach agreement.
This letter is intended to formally document the deadlock and propose a path forward that protects both of our interests and the business."
2. Citation to Agreement Provisions
"Section [X] of our Operating Agreement provides that [quote relevant deadlock, mediation, or buy-sell provision]. Section [Y] requires decisions regarding [leases/contracts/etc.] to be approved by both members.
I am writing to invoke [specific provision] and/or to propose that we engage the process outlined below to resolve this impasse."
3. Business-First Options
"I propose the following options for resolution:
Option A - Mediation: We engage a neutral mediator within 14 days to facilitate a resolution. I suggest [name] or [name] as potential mediators, though I am open to other suggestions.
Option B - Independent Tie-Breaker: For the immediate [lease/contract] decision, we appoint [name or description] as an independent party to make a binding decision.
Option C - Buyout Discussion: If our differences are irreconcilable, I am willing to discuss either purchasing your interest or selling mine at a fair value to be determined by mutual agreement or independent appraisal.
Please indicate your preference within 10 business days."
4. Consequences of Continued Inaction
"If we cannot agree on a path forward, I will have no choice but to explore judicial remedies. Under California law, deadlock and the impracticability of carrying on business may support a petition for dissolution or appointment of a provisional director. Such proceedings would be costly and disruptive, and I strongly prefer to resolve this matter privately.
However, the company cannot continue to be paralyzed. [Specific consequence - e.g., If we do not execute a new lease by [date], we will lose our location and face significant business disruption.]"
For Non-Responsive Partners
"I have attempted to reach you on the following occasions without response:
- [Date]: Email regarding [subject] - no response
- [Date]: Phone call and voicemail - no response
- [Date]: Letter via certified mail - no response
Your continued silence is preventing the company from operating effectively and meeting its obligations. If I do not hear from you within [X] days, I will interpret your non-response as an indication that you do not intend to participate in management, and I will proceed to [take specified action / seek judicial relief]."
Special Situations
Shotgun Clauses
If your agreement has a "shotgun" or "buy-sell" provision triggered by deadlock, be careful: making an offer under these clauses commits you to either buying at the price you name or selling at that price if the other party elects to buy.
Mediation/Arbitration Requirements
Many agreements require mediation or arbitration before litigation. Reference and invoke these provisions in your letter - failure to do so may delay or defeat your court claims.
Stuck in a Business Deadlock?
I help business owners navigate deadlocks, buyouts, and partner disputes. Let's discuss your options.