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Consensual ways to break a shareholder deadlock

On Behalf of | Apr 19, 2024 | Real Estate Law |

Shareholder disputes that end in a deadlock may arise for various reasons. There could be disagreements over the development and direction of the business. The relationship between specific key individuals and the organization may be deteriorating due to a disparity in effort invested in the organization. Also, there could be conflicts over dividend distribution and funding.

Consensus is one way to break such shareholder deadlocks. Here are a few consensus methods that businesses may apply.


If the shareholders cannot reach a compromise by engaging each other directly, mediation can be considered. Even if it does not resolve the dispute, it can help narrow the areas of disagreement.

A mediator should always be neutral, independent and able to encourage dialogue to establish a middle ground so that all parties can get an amicable result. Most shareholder agreements have a dispute resolution clause that sets limits for mediation. If the clause is not there, the parties can pick reputable individuals from their social circles or hire experienced mediators.

If a settlement is reached, the terms of the agreement should be incorporated into the final document. Mediation agreements are enforceable by law and are a cheaper alternative to litigation.

Appoint an independent advisor

If investments, the direction of the company and management roles are the bones of contention, shareholders can hire an independent advisor. This person should be neutral and knowledgeable in the areas in which the shareholders need assistance.

Advisors provide a third set of eyes and can provide insights on issues that shareholders may have overlooked. Being independent means that their advice is not influenced by some quarters within the shareholders. Every shareholder can agree to follow the advisor’s recommendations, ending the dispute.

Negotiate an exit

If a dispute cannot be resolved, some shareholders may opt to leave the company. The company may buy back the value of the shares held and pay other benefits. However, shareholders may also get a chance to buy the shares. Both parties can buy back the shares, but they should do so within the law and the shareholder agreement.

If the company cannot pay the entire value of the shares in one go, terms can be negotiated on deferred payment and the security that the leaver will get to guarantee future payment. If the leaver is a director or has other roles in the organization, the business has to fill the role or change its structure to fill the administrative gap.

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