Canopy Law > Shareholder Agreements > Deadlock & dispute

Deadlock & dispute

As any married couple will tell you, no matter how strong a relationship may seem disputes inevitably arise. In business, slamming doors and ‘the silent treatment’ can disrupt sales and unsettle employees and is unlikely to resolve the problems, so a deadlock or dispute resolution clause written into a Shareholder Agreement is always a good idea, especially where there is equality between the shareholders and risk of dispute is therefore greatest – for example in a 50/50 company.

If there is a dispute between the shareholders then there are a number of methods which the Shareholder Agreement can introduce:

  1. a casting vote to be given to the Chairman of the board;
  2. arbitration: bringing in an independent party to be a mediator;
  3. buy each other out: this will usually take one of two forms: ‘Russian Roulette’, where one shareholder offers to sell all his shares to the other at a specified price and the other shareholder must either accept the offer and buy out at the price stated, or sell all of his shares to the other at that same price. Alternatively, there’s the ‘Texas Shoot-Out’ where sealed bids are submitted to an umpire and the party who submits the highest bid then buys out the other at that price. Both of these methods can favour the shareholder with the deepest pockets;
  4. voluntary winding up of the company: this will occur by default if the other options fail or if the Shareholder Agreement does not set out a method for resolving disputes. In practice, it can be not dissimilar to cutting off your nose because your face has offended you;

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“A good Shareholder Agreement is like a fence at the top of a cliff, which stops company owners from falling over the edge and into the hands of lawyers who wait in the ambulance parked beside the rocks below.

This book explains in easy to understand language what a Shareholder Agreement does, the common clauses it contains and when it is best to put one in place.”