Voting rights are generally based on the proportional holding of shares. In a company with 100 shares, a shareholder of 50 shares can therefore exceed one of the other two, each holding 25 shares. The two minority shareholders can, however, create an impasse by voting together against the majority. A good Disposition of Deadlock usually consists of two parts: Deadlocks don`t just happen in 50:50 joint ventures. Companies in which shareholders have disproportionate stakes or board seats often provide in their shareholder agreements that a super-majority or unanimous agreement at shareholder and/or board level is necessary as a form of minority protection. The failure to reach agreement on such reserved issues is a dead end. It is not uncommon for shareholders to disagree on how the company is managed and controlled, nor on the direction and strategy of the company. This is a Dutch auction in which shareholders make sealed offers indicating the minimum price at which they would sell their shares. The shareholder at the highest price must buy the shares of others at the lowest price. In the absence of a Deadlock clause, in case of blockage, the only option would be the liquidation of the company.
Therefore, a deadlock clause is of the utmost importance, because if two shareholders fail to agree on a key issue, it offers a method to maintain the business as an ongoing business and thus save the business. In case of disagreement, an independent external expert is consulted to examine the facts. The expert has the power to impose a solution and make a decision. All shareholders share equally in the cost of safeguarding an expert. This clause is the most appropriate for matters of a real or technical nature. This clause entitles one or more shareholders who agree on a solution to the issue to buy the other shareholders at an agreed price, but also allows the other shareholders to buy it at the same price. If no one agrees to sell at this price, this clause can degenerate to allow counter-offers until an appropriate price is reached. This solution generally imposes the exit of a certain number of shareholders and favours shareholders who are in a stronger financial position. Deadlock rules are a way to impose a decision. They are usually made so strict by one party (usually minority shareholders) that the threat of using them is enough for one party to change its mind and the problem to be resolved..