The deadlock problem

In companies with multiple owners, cooperation and consensus are crucial for efficient and stable operations. When owners work toward common goals and make decisions together, a solid foundation for growth and development is created. However, in practice, situations may arise where owners have conflicting interests or different perceptions of what is best for the company. A particular challenge arises when the owners cannot agree on important decisions, e.g. regarding investments, strategy, or management, and at the same time there is no majority of owners who can enforce a decision. This phenomenon is called a deadlock situation, and in serious cases it can block the company’s decision-making processes, delay important initiatives, and ultimately threaten the company’s existence if the conflict is not handled constructively.

Deadlock in 50/50 ownership

The deadlock problem is particularly pronounced in companies with two owners, each owning 50% of the company. In this constellation, there is no majority, and therefore no one has the final say in the event of disagreement. Even minor disagreements can develop into deadlock situations where decisions cannot be made and the company’s progress comes to a standstill. This is especially true for strategic decisions, changes in management, capital increases, or other matters that require agreement. Without a pre-agreed mechanism for resolving disagreements, the company risks stagnating, which can not only harm day-to-day operations but also damage the relationship and trust between the owners. In the worst case, it can lead to the dissolution of the partnership or the forced liquidation of the company.

Typical solutions in shareholder agreements

To avoid deadlock situations, many companies choose to incorporate specific mechanisms into their shareholder agreements. These mechanisms act as a kind of safety net that can be activated when disagreements threaten to block the company’s decision-making. The purpose is to ensure that the company can continue its operations and development – even when the owners no longer agree.

One solution could potentially be to involve an external mediator who can help the parties find a solution or make a binding decision. This can be an effective way to break deadlocks, especially when the parties find it difficult to find common ground themselves.

Another method is a mutual purchase/sale model, where one party offers to buy the other party’s ownership share at a fixed price. The other party must then choose between accepting the sale or buying the first party’s share at the same price. This model creates a strong incentive to set a realistic and fair price, as you risk having to sell at that price yourself. It is an effective way to ensure that both parties take the value of the company and their ownership shares seriously, while providing a clear way out of a deadlocked situation.

A related solution is for both parties to submit a sealed bid for the other party’s ownership share, with the highest bidder gaining the right to purchase. This method ensures that both parties assess the value seriously and strategically, and it can help clarify who is most motivated to take over the company.

Finally, the ownership agreement may contain provisions allowing a party to demand to buy or sell ownership shares under certain conditions. This provides flexibility and the opportunity to exit a deadlocked partnership without necessarily having to go to court.

To avoid escalating conflicts and ensure the company’s continued operation, it is crucial that these mechanisms are clearly formulated and fair to all parties. A precise and well-thought-out design reduces the risk of interpretation doubts and ensures that the parties have a common understanding of how disagreements should be handled. At the same time, it helps to maintain trust between the owners and create a stable basis for decision-making, even in stressful situations.

If you have any questions about the above, please feel free to contact Commercial Lawyer and Partner Thomas Hvid Kjær from Raadgiver.dk ApS at +45 71 99 06 10 or thomas@raadgiver.dk.

This article does not constitute and cannot replace legal advice. Raadgiver.dk ApS assumes no liability for any damage or loss, directly or indirectly, attributable to the use of the information provided in the article.

Published July 2025