M Business 5th Edition by Ferrell,Geoffrey Hirt,Linda Ferrell

Exercise 3

Partnerships have their share of legal and business-related advantages and disadvantages.One important concern that is often ignored, however, is the personal element: What happens if partners later develop irreconcilable differences?
In the early 1990s, John Ferolito and Don Vultaggio were close friends and had already been business partners for over two decades, distributing beer and malt liquor in New York. Seeking a more lucrative opportunity, and noting Snapple's success in the bottled tea and fruit juice industry, the pair founded AriZonaIced Tea in 1992. Their unique, affordable24-ounce cans of tea were a hit, and the company grew to become the market leader in the sector.
By 1997, however, the long-time partners' relationship had fallen apart. This was especially problematic because, with each partner holding a 50 percent share, both had equal voting power. Ferolito prevented an "inevitable deadlock" by agreeing to withdraw from involvement in day-to-day operations. However, when he later sought in 2005 to sell his share of the company, he was blocked by a provision of their agreement preventing the sale of either partner's share without both partners' consent. Vultaggio eventually agreed to buy Ferolito's share and take full control. Yet instead of fixing the problem, this sparked a drawn-out legal battle over the valuation of the company (and how much Vultaggio should pay Ferolito), which continued for more than six years. The partnership challenges faced by the owners of AriZona demonstrate how important it is for partners to plan for potential future disagreements in their articles of partnership. 6
Why do partners often fail to consider, and plan for, the possibility of later personal fallout?