Spross & Associates, PLLC

What About 50/50 Ownership?

I get the question all the time about what to do about 50/50 ownership in entities.  My first answer is “Don’t have 50/50 ownership,” but many times that just doesn’t work.  So now you have 50/50 and you have to figure out what to do if the two “partners” don’t agree.  I’ve been using a two phase approach. 

First, if the issue is not really that important, you cannot agree, but either answer would be okay for the business, you can use a coin flip.  The winner of the coin flip decides.  I like to only have this provision apply if both parties agree to the coin flip.

Second, if the parties don’t agree to the coin flip, there are a couple of things you can do.  You could just wind up the company (not a great answer) or you can appoint business consultants to make a decision.  I like for each of the principals to appoint a business consultant and then those two consultants mutually appoint a third consultant.  Then, those consultants make a decision.  The consultants can be anyone and I don’t like to put any restrictions on who those consultants can be.

Below is a sample provision that could be used.

"Notwithstanding anything to the contrary contained in this Agreement, in the event Principal #1 and Principal #2 are the sole owners and Principal #1 and Principal #2 cannot agree on a course of action that is to be determined by the Members, upon mutual agreement, Principal #1 and Principal #2 agree to flip a coin to decide how to proceed.  In the event Principal #1 and Principal #2 do not mutually agree to flip a coin, Principal #1 shall choose one independent business person and Principal #2 shall choose a second independent business person, and the two business persons so chosen shall appoint a third person who shall cast the deciding vote on the issue giving rise to the deadlock."

Mutual Indemnification

Many agreements have indemnification provisions.  Most of the time the indemnification only protects the party that created the agreement.  You must think carefully about just "making the indemnification mutual".  Many times that does not make sense.  Just making it mutual does not take into account the things that might come up that require indemnification.  For instance, if the indemnification is for "breach of warranties", but one of the parties has not provided any warranties, making it "mutual" is irrelevant. 

One of the most common things that I see is a warranty that has a "knowledge" qualifier and then indemnification is for breach of warranty as opposed to for claims of intellectual property infringement.  If you are the party receiving the technology, you have a hole in your protection for potential third party liability if you just made the indemnification mutual.

Facebook Usernames and Trademarks

Most folks know that Facebook is allowing fanciful usernames starting at midnight on June 13, 2009.  If you have a registered trademark, you can submit that mark to Facebook to "reserve" your username for your company.  There is a very simple webform that requires the exact name of your trademark and the U.S. registration number.  I'm not certain what exactly Facebook does after the webform is submitted.  All I have received back so far is a canned email that says, "Thank you for your submission. If valid, we will process your request and contact you when reserved usernames are available for registration."  To be safe, you should register your user name too.