By Tamer (Tom) Abdou, Esq.
As a business law lawyer specializing in New Jersey corporate formations, governance, and disputes, I frequently advise startup founders and small business owners on structuring their companies to avoid costly conflicts down the road. One common question from entrepreneurs forming a two-shareholder S corporation in New Jersey is whether they can appoint two officers as co-presidents—and if so, how to handle potential disputes or deadlocks between them.
The short answer: Yes, it’s generally permissible under New Jersey law, but it requires careful planning in your bylaws and possibly a shareholders’ agreement to prevent paralysis. Without proper safeguards, what starts as equal partnership enthusiasm can turn into operational gridlock. In this post, I’ll break down the legal framework, practical considerations, and strategies to resolve disputes—drawing directly from the New Jersey Business Corporation Act (N.J.S.A. Title 14A) and real-world experience helping clients avoid or escape business divorces.
Can a New Jersey Corporation Have Co-Presidents?
New Jersey’s statute on officers (N.J.S.A. 14A:6-15) requires a corporation to have “a president, a secretary, [and] a treasurer,” with flexibility for “one or more vice presidents” and “such other officers as may be prescribed by the by-laws.”
The law uses singular language for the president (“a president”), but it doesn’t explicitly prohibit multiple individuals sharing the role as co-presidents. Many closely held corporations—especially 50/50 owner setups—successfully implement this structure by amending their bylaws to:
- Explicitly create co-president positions.
- Define shared or divided authority (e.g., joint sign-off on major contracts, primary responsibility in certain areas like operations vs. finance).
- Allow the board (often the same two shareholders) to elect both individuals.
This setup is practical for startups where both founders want equal executive status without one being designated “president” and the other “vice president.” It aligns well with S corporation requirements, as the IRS focuses on reasonable compensation for working shareholders, not officer titles.
However, conservative interpretations note the singular wording, so to minimize risks (e.g., confusion in banking, contracts, or third-party dealings), always customize your bylaws clearly and consult a startup business lawyer early.
The Real Challenge: Deadlock Between Co-Presidents in a 50/50 S Corp
In a two-shareholder S corporation, co-presidents are usually the same two individuals who own 50% each and serve as directors. Equal authority sounds fair—until a disagreement arises over a key decision, like approving a large expense, hiring key staff, or pursuing a new strategy.
Without mechanisms in place, this leads to a deadlock: the business can’t act on substantial matters, risking stalled growth, missed opportunities, or financial strain.
Under New Jersey law (N.J.S.A. 14A:12-7), severe deadlock can trigger court intervention in closely held corporations (25 or fewer shareholders). A shareholder can petition the Superior Court (Chancery Division) for remedies if directors or those in control can’t act on major issues, or if there’s oppression/unfair treatment.
Possible court remedies include:
- Appointing a provisional director (a neutral tiebreaker to resolve specific deadlocks).
- Appointing a custodian to manage operations temporarily.
- Ordering a buyout of one shareholder’s shares at fair value.
- In extreme cases, judicial dissolution (winding up the company and liquidating assets)—a last resort that destroys value for everyone.
Courts require proof of actual or threatened irreparable harm to the corporation, and they intervene reluctantly. Litigation is expensive, time-consuming, and often damages the business irreparably.
Best Practices: Prevent Deadlock with Proactive Planning
The smartest approach? Build deadlock resolution into your governing documents from day one. As a business law attorney who helps startups draft these, here are proven strategies:
1. Customize Bylaws and Adopt a Shareholders’ Agreement Bylaws control officer duties; a separate shareholders’ agreement (binding owners) handles ownership-level disputes. Include explicit deadlock provisions.
2. Common Deadlock-Breaking Mechanisms
- Mediation/Arbitration Requirement: Mandate good-faith negotiation or neutral mediation before escalation.
- Tiebreaker roles: Rotate final say on categories (e.g., one co-president decides operations, the other finance) or appoint an independent advisor.
- Buy-Sell Triggers (e.g., Shotgun/Russian Roulette): If deadlock persists (after X days), one owner offers to buy the other’s shares at a set price; the other can accept or buy back at that price.
- Texas Shootout: Sealed bids for the other’s shares; highest bidder wins.
- Third-Party Arbiter: Binding decision by a neutral expert or advisory board.
3. Additional Safeguards for Startups
- Define “major decisions” requiring joint approval.
- Include buy-sell clauses for death, disability, or voluntary exit.
- Plan for reasonable compensation to satisfy IRS S corporation rules.
Final Thoughts: Get It Right from the Start
Forming a 2-shareholder S corporation with co-presidents can foster true equality and collaboration—ideal for many startups. But equality without structure invites deadlock, and New Jersey courts offer remedies only when things have already gone badly wrong.
If you’re launching or restructuring a New Jersey business, don’t rely on generic templates. A tailored bylaws amendment and shareholders’ agreement can save thousands in future disputes.
As an experienced business law lawyer and startup business attorney serving clients across New Jersey (including Oakland and nearby areas), I help entrepreneurs build resilient structures that protect their vision. Contact a qualified business law attorney today to review your setup—preventing problems is far easier (and cheaper) than fixing them.
This post is for informational purposes only and does not constitute legal advice. Laws can change, and your situation may vary. Always consult a licensed New Jersey attorney for personalized guidance.
