Shareholder deadlock

Where the board and shareholder base are split evenly, one of the biggest issues to work around is that a 50:50 split between directors or shareholders can make it difficult to take key decisions where there is disagreement. In cases where there is no shareholders agreement and the standard articles have not been modified, this can causes a range of problems.

The Companies Act 2006 provides limited mechanisms for resolving shareholder deadlocks, despite many small companies being deliberately set up with equal shareholdings and two directors.

Reasons to work with us to resolve a shareholder deadlock

We are experienced in resolving shareholder deadlocks in private companies.

• We have resolved a great many cases in our time.  We handle difficult personalities in stressful situations.  We deal with director/shareholders who are no longer contributing to the business for a variety of reasons.
• We have experience of acting for companies, directors and shareholders. We understand the different interests involved and can consider the tax and commercial aspects alongside the legal position. We assess what is proportionate and practical in the circumstances.

Finally, but importantly, we are realistic about what can be achieved and focus on finding a workable solution.

Typical problem areas faced when there is a 50:50 deadlock

• Removal of a director - a simple majority of shareholders is generally required to remove a director. Where shareholders are split 50:50, the required shareholder majority cannot be achieved if the other 50% of shareholders vote against the resolution, leaving the company in stalemate.
• Shareholder approval for certain transactions - including some share transfers and other significant company decisions. Where shareholders are split 50:50, the required shareholder approval may not be achievable, preventing the company from moving forward.
• Banking arrangements - if a bank becomes aware of a serious dispute over the management or control of a company, it may take steps to protect its position, which can create significant difficulties for the business.

How we help resolve shareholder deadlock

• Strategic Legal Advice - on rights and remedies under the Companies Act 2006, shareholder agreements and articles of association.
• Review of Governance Documents - to identify any existing mechanisms for resolving deadlock (e.g. casting votes, chair powers, buy-sell provisions).
• Implementation of Deadlock-Breaking Mechanisms - such as Russian roulette, Texas shoot-out or independent third-party intervention, where appropriate.
• Advice on Unfair Prejudice Claims. - including considering whether conduct may justify an application to the court.
• Exit Strategy Planning - including structured buyouts, share transfers or a sale of the company.
• Emergency Legal Remedies - advising on urgent protective measures and court applications where deadlock threatens business continuity, bringing in specialist litigation support to oversee the formal court proceedings.
• Corporate Restructuring Advice - to realign ownership, control, or governance where deadlock is ongoing.
• Future-Proofing Governance - by updating constitutional documents to minimise the risk of future stalemates.

Buyback and cancellation of shares

If the company has sufficient funds, a company share buyback may provide a route to resolving a shareholder deadlock, once the parties have agreed the terms and purchase price.

We are experienced in obtaining sensible outcomes in 50:50 shareholder disputes and focus on achieving sensible, commercially workable outcomes.