Letters of Intent

In this episode breakdown, Pankaj Raval and Sahil Chaudry take apart the 50/50 partnership, the most common and least documented ownership structure in private business. They work through a line of recent state court decisions and the LLC statutes of Texas, California, and Delaware to answer one question a handshake never answers: does your co-founder actually owe you anything?

Through this practical analysis, Pankaj and Sahil extract critical distinctions in default entity law, governance design, and buy-sell mechanics, that apply directly to founders and leaders of growing private enterprises operating on trust instead of paper.

This podcast is for informational purposes only and does not constitute legal advice.

The Default Rules of Your State: A partnership with no governing document does not operate without rules. It operates under the rules the state wrote, and those rules differ sharply depending on where the entity was formed. Founders who file cheaply and quickly online rarely learn which set they accepted.

Separating Formal Duty from Informal Trust: Courts in some states have held that co-ownership alone creates no formal fiduciary duty between members. A narrower informal duty can still exist, but it has to have existed before and apart from the venture now in dispute, and the other side has to have traded on it. 

The Manager-Managed Filing Trap: A California LLC is member-managed by default unless the election appears in both the articles of organization and the operating agreement. Signing a detailed manager-managed agreement while the articles say otherwise can leave the entity carrying full member-to-member duties nobody intended to take on. 

The Machinery of a Workable Buy-Sell: A buy-sell with a trigger and no price mechanism resolves nothing. The shotgun clause is elegant but favors whichever owner can raise cash, which makes it a purchase option rather than a coin flip, so a formula price or a defined appraisal process usually serves a founder pair better. 

"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." 

"So the default is not no deal, the default is somebody else's deal." 

"And deadlock does not announce itself, it accumulates." 

"And the answer to that can be yes. Asymmetry is completely fine. Undocumented asymmetry is a lawsuit."

50/50 Partnership, Fiduciary Duty, LLC Operating Agreement, Member Managed LLC, Buy Sell Agreement, Co-Founder Disputes, Corporate Governance, Entity Formation, Deadlock Provisions, Business Partnership Law

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Website: carbonlg.com

Connect with Pankaj: https://www.linkedin.com/in/pankaj-raval/

Connect with Sahil: https://www.linkedin.com/in/sahil-chaudry-6047305/
Carbon Law Group's links: https://linktr.ee/carbonlawgroup