50/50 Partnerships, Part 1: Handshake Deals
Two best friends since childhood. Twenty years of friendship, ten years in business together, split 50/50. One runs sales, the other runs operations, and the company is profitable every single year.
How many pages of governing documents do they have?
Zero.
A certificate of formation and an annual report with the state. That is the entire file. As Pankaj put it on a recent episode of Letters of Intent, what they actually own together is a friendship with a taxpayer identification number.
For nine years, that worked. In year ten, one of them called a lawyer.
Pankaj Raval and Sahil Chaudry used this composite scenario to answer a question that a handshake never answers: does your co-founder actually owe you anything?
Does Your Co-Founder Owe You a Duty?
Most founders assume the answer is obviously yes. Loyalty, good faith, fair dealing. You built the thing together.
In a growing number of places, the law disagrees.
What Texas has said
Sahil walked through a line of Texas decisions. In March 2025, in Bertucci v. Watkins, the Texas Supreme Court held that members of an LLC do not owe formal fiduciary duties to fellow members simply because of their relationship as co-members.
Being co-owners, by itself, creates no fiduciary duty between you.
According to the episode, Texas business courts then applied that reasoning in subsequent cases, including one dismissed at the pleading stage before any discovery occurred. That dismissal rested on two independent grounds: Texas common law does not impose broad member-to-member duties, and the company agreement itself disclaimed them.
What that means in practice
Sahil summarized it memorably. Twenty years of friendship buys you an enormous amount as a human being. As a matter of default entity law in Texas, it buys you zero.
The practical lesson reaches beyond Texas. You cannot assume the protections that run between a majority and minority owner, or between a director and a company, automatically run between two equal co-founders standing side by side.
If you want your co-founder to owe you a duty, someone needs to write it down.
The Narrower Door, and Who Gets to Sue
Pankaj was careful to prevent this from being overread, and the nuance matters.
Informal fiduciary duty still exists
Courts do recognize an informal fiduciary duty arising from a relationship of trust and confidence. You want that relationship with every business partner you have.
But courts generally want that relationship to have existed before and apart from the business deal now in dispute. “We were friends” is not the argument.
The argument has to be that a genuine relationship of trust existed independent of the venture, and that the other side traded on it. That is a much narrower door than people assume.
Where duties run matters enormously
Here is the piece Pankaj identified as actually deciding cases. Where duties do exist, they frequently run to the company rather than to you personally.
That changes who gets to sue and what they recover.
If the duty runs to the entity, your claim may have to be brought derivatively on the company’s behalf. And the recovery may go back to the company rather than to you.
Which you own half of, as Sahil pointed out. Together with the person you are suing.
So even a winning claim can produce an outcome that feels nothing like winning. That structural problem is exactly why the document you sign at formation matters so much more than the friendship behind it.
Three States, Three Different Answers
Would the result change if the same two founders had formed their company somewhere else? Absolutely, and this is where Pankaj called the law genuinely unfair to founders.
California builds duties in
Under California Corporations Code Section 17704.09, a member of a member-managed LLC owes a duty of loyalty and a duty of care. The statute states plainly that those duties run to the company and to the other members.
Same facts in California, and the aggrieved founder at least gets in the door.
The California filing trap
Here is the trap, and it catches people constantly. California treats an LLC as member-managed by default unless the manager-managed election appears in both the articles of organization and the operating agreement.
So you can sign a detailed manager-managed operating agreement and still end up member-managed by operation of statute, because the articles said otherwise. That leaves the entity carrying full member-to-member duties nobody intended to take on.
Sahil described it well: a filing cabinet problem that turns into a fiduciary problem.
Delaware lets you contract almost everything away
Delaware takes the opposite approach. Under Section 18-1101(c) of the Delaware LLC Act, duties including fiduciary duties may be expanded, restricted, or eliminated by the LLC agreement.
Eliminated. You can contract the duty of loyalty out of existence.
There is a floor. The agreement cannot eliminate the implied covenant of good faith and fair dealing, nor liability for a bad faith violation of it. But that covenant only fills gaps the parties could not reasonably have anticipated. It does not rewrite a bargain you made and now regret.
Three states, same handshake, three different answers. And almost nobody picks their state of formation thinking about any of it.
Four Mistakes That Did Not Look Like Mistakes
Ten profitable years looks like success from outside. Sahil identified four failures, and none of them looked wrong on the day they happened.
No governing document
This does not mean no rules. It means the state wrote your rules.
As Pankaj put it, the default is not no deal. The default is somebody else’s deal.
Total functional siloing
One founder ran sales. The other ran operations. Neither had real visibility into the other half.
That feels efficient, and it is. It is also how you build asymmetric information, and asymmetric information becomes asymmetric leverage the day the relationship turns.
Sahil drew a useful distinction here. Acting as vice president of sales is an officer role. Overseeing the whole company as a manager or director is a different role with different power and responsibility. Co-founders should hold both views rather than only their own silo.
Unequal draws on an unwritten understanding
One partner takes more cash out, acknowledged vaguely by text, never agreed clearly in writing. Was it a loan, compensation, or a distribution? Nobody characterized it.
That becomes a tax headache first and a governance dispute later.
Pankaj stressed that good contracts need good controls. The firm increasingly brings in fractional CFOs and controllers so that distributions actually get booked correctly, because these problems tend to appear when companies are doing well and discipline loosens.
No governance cadence
No meaningful conversation about the business in roughly a year.
As Pankaj said, deadlock does not announce itself. It accumulates.
The Machinery That Actually Works
“Get an operating agreement” is useless advice on its own. Here is the specific machinery the episode laid out.
Put an odd number in the room
When two owners each control half the votes, the company’s ability to act depends on them agreeing forever.
Build a tiebreaker. That can be a casting vote that rotates annually, or a neutral third manager who votes only on deadlock. That person does not need to be a grand outside director. A named individual with a narrow mandate works.
Build a buy-sell with a trigger you both accept
Agree on the exit mechanism before either of you knows who will pull it.
The classic version is the shotgun clause. One owner names a price, and the other chooses whether to buy or sell at that number.
It is elegant, and as Sahil noted, it is not neutral. The shotgun favors whoever can raise cash. If one partner has liquidity and the other does not, that is not a coin flip. It is a purchase option.
For many founder pairs, Pankaj prefers a put and call at a formula price, or a defined appraisal process, over a shootout.
Agree on valuation, not just the trigger
This is the step everybody skips. A buy-sell with no price mechanism is, in Pankaj’s words, a lawsuit with extra steps.
Options include a multiple of trailing earnings, a value both owners stipulate annually at the same meeting where they sign the tax return, or a defined appraisal where each side names an appraiser and those two select a third.
Compensation, Parity, and Cadence
Three more pieces complete the structure.
Write down compensation and distributions
Set base pay, how it changes, who must approve a change, and what happens when one owner needs more cash than the other.
That last question can have a yes answer. As Sahil put it, asymmetry is completely fine. Undocumented asymmetry is a lawsuit.
Keep parity on information and signatures
Both owners should be authorized signers on the operating account. Each should have standing access to the financials, and each name should appear on the formation and banking paperwork.
Parity keeps equal partners transparent with each other, which is the point of being equal.
Keep a governance cadence you will actually maintain
Hold a standing quarterly meeting with a written agenda and a one-page record of decisions.
Sahil acknowledged this sounds absurdly bureaucratic for a two-person company. It is still far cheaper than a lawsuit, and it respects the gravity of being in business together.
Pankaj added something personal. Partnerships fray when partners stop communicating, so build regular time together outside the business as well. He speaks from experience, including partnerships of his own that did not work out and things he wishes he had done earlier.
Think about the split itself
Pankaj also suggested founders question whether 50/50 is right at all before defaulting to it. Frameworks that allocate equity dynamically based on contribution, such as the Slicing Pie model he referenced, can reward what each person actually brings rather than assuming equal shares from day one.
What Happens Next
In the episode’s scenario, the sales founder did exactly what Pankaj and Sahil would have advised. Rather than walking away or lawyering up, he sat down with his partner in person and had the hard conversation.
He left believing it went fine. Seven days later, however, his partner filed a lawsuit, and he could no longer log into the company bank account.
Part 2 takes that apart: what the lockout actually was, whether anyone had the right to do it, and the exit ramps available when a 50/50 stops working.
Every failure described here is free to prevent and expensive to survive. Pankaj Raval and our team at Carbon Law Group help Los Angeles founders structure partnerships properly from the start, including state of formation, manager-managed elections, deadlock mechanisms, buy-sell agreements, and valuation provisions. We also help partners clean up arrangements that were never documented, which is a fixable situation when addressed early.
If you are in a 50/50 partnership on a handshake, contact Carbon Law Group at carbonlg.com. Bring your articles of organization and whatever agreement you have, even if the honest answer is none.
Carbon Law Group’s links: https://linktr.ee/carbonlawgroup