Two 50/50 Founders, One Frozen Vote: Fixing It in Woodstock

The situation

Marco and Rosa incorporated their mechanical contracting company nine years ago with 50 shares each. Marco, a licensed plumber, ran the field side: crews, job sites, equipment, the trade relationships that brought in commercial contracts. Rosa kept her job as an insurance adjuster for the first three years while handling the company's books and invoicing on evenings and weekends, then came on full time once the business could support two salaries. By the time they called Treadstone Law, the company was doing roughly $3 million a year in revenue across residential and light commercial plumbing and HVAC work, with twelve employees and a fleet of service vehicles.

Neither had ever signed a shareholder agreement. At incorporation, a bookkeeper had filed the paperwork and issued the shares 50/50, and that was the extent of the planning. For years it did not matter — the two of them agreed on almost everything, and disagreements got settled over coffee. The gap only became a problem when they stopped agreeing.

The problem

The immediate trigger was a decision about whether to lease a larger shop and yard to support a growing commercial contract, or to stay lean and keep cash in reserve. Marco wanted the expansion; Rosa, watching the company's cash position the way she watched claims files, wanted to hold off another year. Under the company's articles of incorporation, most significant decisions required approval of a majority of shares. With 50 shares each, a majority was mathematically impossible unless one of them changed their vote. Nobody was going to.

That single stuck decision exposed a wider problem. The company had no mechanism for what happens when two equal owners cannot agree — no tie-breaking vote, no process for one owner to buy the other out, no valuation method, no restriction on either of them selling their shares to an outside party if they got frustrated enough to try. Under the default rules that applied without a shareholder agreement, either of them could, in theory, transfer their shares to someone else entirely, bringing in a stranger as a co-owner of a company the other had spent nine years building.

There was also an unspoken second layer to the dispute. Rosa had drawn a lower salary than Marco for years, on the understanding that her insurance income during the early period had let the company avoid taking on debt. Marco felt his hands-on trade work and client relationships carried more of the company's value than the books did. Neither had ever said this to the other directly. It surfaced only once they sat across from each other with a lawyer taking notes, and it made the shop-lease disagreement harder to resolve on its own, because it was really two disagreements layered together.

What we did

1. Separated the immediate decision from the structural gap. The shop lease could not wait for a full negotiation, so our team helped the two of them reach a short-term interim resolution — a smaller, month-to-month space that let the commercial contract proceed without committing to the larger long-term lease either of them was arguing about. That took the time pressure off the bigger conversation.
2. Brought in an independent business valuator. Compensation history and who-contributed-more arguments go nowhere useful without a neutral number. Winston, a valuator retained jointly by the company, assessed its value at roughly $1.2 million, which gave both Marco and Rosa a fixed reference point instead of competing gut estimates.
3. Drafted a shareholder agreement built around deadlock, not just governance. Most shareholder agreements set out voting rules and share transfer restrictions. This one was built specifically to answer the question that had just paralyzed the company: what happens when a 50/50 vote does not resolve. It included a shotgun clause — either owner can offer to buy the other out at a stated price per share, and the recipient must either sell at that price or buy the offering owner out at the same price. A shotgun clause forces the person naming the price to price it fairly, since they may end up on either side of the transaction.
4. Added a tie-breaking mechanism for day-to-day operational deadlocks. A full buyout is a drastic response to an argument about a shop lease. The agreement also set out a faster process for operational disagreements below a certain dollar threshold: a defined cooling-off period, followed by mandatory mediation with a neutral business mediator before either owner could invoke the shotgun clause. This gave them a way to resolve smaller disputes without reaching for the nuclear option every time.
5. Addressed compensation and contribution directly in the agreement. Rather than leave unequal salary history as an unresolved grievance, the agreement set out a formal compensation review process tied to defined roles and responsibilities, reviewed annually by both owners with an accountant's input. It did not retroactively correct past years, but it gave future disagreements a process instead of a festering resentment.
6. Restricted share transfers to outsiders. The agreement added a right of first refusal, requiring either owner to offer their shares to the other before selling to anyone outside the company, and prohibiting transfers to third parties without the other's consent except in narrow circumstances like estate planning transfers to a spouse or family trust.

The outcome

The negotiation took a little over two months, longer than either founder expected going in, and it required real compromises on both sides. Marco wanted a lower threshold for triggering mediation on operational disputes, believing decisions needed to move faster; Rosa wanted a higher one, worried that a low threshold would let every disagreement escalate into a formal process. They settled on a threshold in between, tied to a percentage of the company's capital budget, that neither considered perfect but both could work with. Rosa did not get retroactive compensation for her early years of lower pay, which she had hoped for going in; Marco did not get sign-off to pursue the larger shop lease without an updated valuation and Rosa's agreement first, which he had also hoped to avoid.

What both of them got was a company that could make decisions again, and a defined, affordable process for the next time they disagreed rather than a repeat of the shop-lease standoff. The shotgun clause has not been triggered since the agreement was signed. Its main value, as is often the case with these clauses, has been as a deterrent — both owners know that pushing a disagreement to the brink now has a defined and fairly priced consequence, which makes each of them more willing to negotiate before getting there. Roughly eight months after signing, they used the new mediation process once, over a hiring decision, and resolved it in under three weeks instead of the open-ended standoff the shop lease had become.

The company went on to lease the larger shop the following year, once cash reserves and the commercial contract pipeline supported it, with both owners approving the decision together.

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