By Guy Zarins
Wilson Browne Solicitors
RECENTLY, I have seen a growing number of matters involving a disagreement between company shareholders, where the 50/50 shareholders are in a deadlock situation. With no clear way out, this has often led to disputes which become time consuming and costly. There are ways to avoid these difficulties from arising, however.
The most common option is for the shareholders to enter into a shareholders' agreement which outlines how the parties must act; the matters requiring unanimous consent, conditions on a transfer of shares etc.
It is a good idea for a bespoke shareholders' agreement to also include provisions dictating what happens in the event of deadlock; the theory being it is easier to agree what will happen if you fall out when you're still on speaking terms. A common tool, for instance, is to perhaps give a third party a casting vote, or change the voting rights so that each shareholder has one vote each on certain matters, irrespective of proportionate ownership.
Deadlock provisions are useful for when other potential avenues of dispute resolution, such as mediation, have been explored. They can take different forms, but often come down to the requirement for one shareholder to sell their shares to the other. This can be viewed as a nuclear option, only to be used when you can't continue in business together, but in many instances it is preferable and more cost effective than taking the matter to court.
There is ultimately no 'one size fits all' solution and shareholders' agreements should be tailored to each company with the assistance of an experienced legal advisor, who can talk through the options and pitfalls.