What to do when your company is stuck in a deadlock
What to do when your company is stuck in a deadlock When you run a company with other people, you need to make decisions together about the business. Sometimes, you might disagree with each other and not be able to reach a consensus. This is called a deadlock and it can happen at any level of the company, whether it’s among directors or shareholders.
A deadlock can be a serious problem for your company, especially if it affects its performance or reputation. That’s why it’s important to have a way to resolve it quickly and fairly.
How to prevent a deadlock from happening The best way to prevent a deadlock from happening is to have a Shareholder Agreement that spells out how to deal with it. A Shareholder Agreement is a contract between the shareholders of the company that sets out their rights and obligations, as well as how the company is run.
A Shareholder Agreement can include various clauses that can help you break a deadlock, such as:
- Giving the chairperson of the board an extra vote in case of a tie
- Requiring the parties to try their best to work out their differences
- Allowing one party to offer to buy or sell their shares to the other party at a certain price
- Finding a third party who can buy all the shares of the company
- Referring the matter to an independent expert or mediator who can give an opinion or help the parties reach an agreement
- Dissolving the company if the deadlock cannot be resolved
How to deal with a deadlock if you don’t have a Shareholder Agreement If you don’t have a Shareholder Agreement or if your Shareholder Agreement doesn’t have enough provisions to deal with a deadlock, you might have to take legal action. This could involve suing the other party for acting oppressively, breaching their duties or causing harm to the company. You could also ask the court to wind up the company on the grounds that it is just and fair to do so.
However, legal action can be very expensive and time-consuming and can damage your company’s reputation and value. Therefore, it is always better to have a written Shareholder Agreement that can help you avoid or resolve a deadlock.
Our Commercial & Disputes Division lawyers are experts in drafting Shareholder Agreements, updating existing Shareholder Agreements to include suitable deadlock clauses and assisting parties in resolving and litigating director and shareholder disputes.
If you need advice on your company structure or a potential business dispute, contact us today