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A Deadlock Clause is a clause generally found in a Shareholders’ Agreement which determines how disagreements on key issues are to be resolved.
It is extremely helpful in companies where shares are equally owned between shareholders; for example, where two shareholders equally own 50% shares in the company.
In this scenario when a disagreement arises between the shareholders that prevents the company from running properly a deadlock is said to have been reached.
A Deadlock Clause can help the shareholders reach an agreement by providing a mechanism for the resolution of the problem.
This Deadlock Clause template sets out a number of options for the resolution of a deadlock.
The main options are:
In the absence of a Deadlock Clause when there is a deadlock the only option would be the winding up of the company.
Therefore a Deadlock Clause is paramount because when two shareholders are unable to agree on a key issue it provides a method to preserve the business as a going concern, thus saving the company.
This Deadlock Clause can be inserted in a Shareholders’ Agreement either at the drafting stage or later on as an amendment to an existing Shareholders’ Agreement.
To get a better understanding of shareholder’s Agreements and how they work we’ve got some great guides to help you:
Protect your interests with a shareholders agreement
We’ve also got a useful checklist to help you when drafting your shareholders agreement.
Book a 30-minute call with one of our experts. You’re in safe, experienced hands.