A shareholder stalemate or deadlock happens when the company cannot move forward, usually when quorum isn’t achieved or votes are tied and a resolution cannot be passed.
For this reason, Shareholders’ Agreements (SHAs) typically include deadlock provisions that give parties a clear roadmap on what to do when this happens, and the article below explains common causes of deadlocks and how SHAs help.
6 common deadlock situations
A deadlock is not usually triggered the first time parties fail to agree, and most SHAs treat it as a deadlock when the same issue remains unresolved over a period of time, for example, after two consecutive meetings or within a set timeframe.
Here are common examples of events that can lead to a deadlock:
| Deadlock Events | Brief Explanation |
| Quorum cannot be met | A board or shareholder meeting cannot proceed because the minimum number of attendees is not present |
| Votes result in a tie | After multiple attempts, resolutions continue to fail due to equal votes for and against |
| Unanimous or special approvals cannot be obtained | Certain reserved matters requiring unanimity or higher voting thresholds under the Companies Act 2016 or the SHA remain unapproved after repeated attempts |
| Directors abstain or refuse to vote | Decisions stall when one or more directors repeatedly decline to participate |
| Circular resolutions not signed | Written resolutions remain pending when required shareholders continually refuse to sign |
| Repeated adjournments with no progress | Postponed meetings with no change in voting outcome, creating prolonged paralysis |
How an SHA resolves deadlocks
In the event of a deadlock, having an SHA is crucial because it sets out clear, pre-agreed steps on what parties must do next.
These mechanisms prevent uncertainty and help keep the business moving even when shareholders cannot agree, and common mechanisms include:
| Mechanism | Explanation |
| Cooling Off Period + Negotiation | Parties attempt to resolve the issue amicably within a set period of days, before proceeding to other mechanisms |
| Casting Vote | A designated individual (e.g, chairperson) is given a deciding vote when there is a tie Works best when the appointed person is neutral and trusted by all parties |
| Buyout Mechanism | One party offers to buy the other party’s shares at a stated price or pre-agreed formula The receiving party must either sell or buy the offering party out at the same price, encouraging fair pricing and providing a decisive way to end a deadlock |
| Expert or Mediator Determination | An independent expert helps parties reach a practical solution or makes a determination on specific issues Useful for technical or valuation-related disputes |
| Put / Call Option | Allows one party to require the other to buy or sell shares based on a pre-agreed formula Effective when valuation terms are clear and both parties have financial capability |
| Domain-Based Deadlock | The party most connected to the area of dispute (e.g., operations, tech, finance) is given the right to make the decision or take over the matter Works well when the deadlock relates to specific functional responsibilities |
| Sale of the Company | If the stalemate cannot be resolved, both parties agree to sell the entire business to a third party Provides a clean exit for all parties |
| Winding Up | The company is voluntarily would up only after all other options fail, usually included as the final fallback |
These mechanisms are not one-size-fits-all and deadlock structure, triggers, valuation approach and sequence of steps can all be tailored to suit the parties’ dynamics.
What if an SHA has no deadlock clause?
Without a clear deadlock clause, a prolonged stalemate can leave the company stuck with no structured way forward and may result in the following consequences:
- decisions may be delayed, with key matters unable to move forward even if daily operations continue
- investors may view unclear or unresolved deadlocks as a red flag and hesitate to fund the company
- tension between shareholders can grow as prolonged impasses make disagreements increasingly personal
- exit outcomes may lean toward the party with stronger bargaining power
- the business may face long-term uncertainty until the issue is resolved
And for companies without an SHA altogether, the risks are even higher, as there is no agreed roadmap to address decision-making, shareholder rights or potential stalemates.
Let ELP tailor your SHA deadlock provisions
Deadlock provisions play an important role in keeping a business moving when shareholders cannot agree, and for help with structuring or updating your deadlock provisions (and other key terms in your SHA), reach out for a free consultation.
