Deadlock clauses in shareholders’ agreements

29 November 2022 | Knowledge, News

Shareholders often disagree with each other on how their company should be managed and controlled, and the direction and strategy it is taking. Differing views may be beneficial to a business, but disagreement, potential deadlock and an inability to make important decisions can be severely damaging to the company (and, in the long run, to shareholders).

Deadlock provisions within shareholders’ agreements, investment agreements or articles of association provide a means of resolving issues which shareholders cannot agree or otherwise compromise on.

What is deadlock

Usually, shareholders’ agreements set out the conditions that must be met for deadlock to occur. However, these are generally situations which go beyond a mere single ineffective vote by shareholders.

Usually, a number of votes on the same issue must be made over a period of time, with the outcome being each time consistently indecisive. Such delay would generally give shareholders time to compromise on or find other ways of resolving the issue.

Deadlocks can also occur when other dispute resolution methods have been tried and failed, for example, when shareholders’ agreements provide for shareholders using mediation to find an amicable solution if an issue cannot be resolved after two general meetings.

Deadlock provisions are a way of forcing a decision in such situations, being often so severe for one side that the threat of their use is enough for the issue to be resolved by compromise. The circumstances in which they can be used are usually limited to matters significantly affecting business operations.

The most common types of deadlock clauses

Although deadlock clauses can be given all sorts of interesting names, they all boil down to a requirement of one party selling their shares to the others so that there is a change of control and the remaining shareholders can make a decision on the disputed matter. In effect, these are all types of conditional termination provisions. Common examples of deadlock clauses in shareholders’ agreements include:

Shotgun / Russian Roulette

Essentially, such clauses allow one shareholder to make an offer to buy out the other shareholder for a certain price and under certain terms and conditions, who is then allowed to either accept such offer or buy the shares of the offeror for the same price and under the same terms and conditions (assuming there are two equal shareholders).

Texas Shootout

In this type of deadlock clause, each shareholder sends a sealed bid for the others’ shares to an independent and neutral third party. The third party then opens all bids at the same time and the highest bid wins, with the winning shareholder required to buy the others out at that price.


An auction is similar to a shotgun mechanism as the offering shareholder may have the opportunity to pay a price of their choice, including a premium. However, an auction also differs from a shotgun approach, in that it lacks adverse consequences for shareholders making low bids, as the outcome simply depends on who makes the highest bid.


The absence of appropriate clauses to resolve deadlocks before they occur can come with a high cost. With such clauses, if there is severe disagreement, there are various ways of seeking exit from the company or resolving the problem such as using drag along clauses. Given the genuine possibility of a deadlock among shareholders and the existential threat this can pose to a company’s ongoing viability, shareholders should ensure the shareholders’ agreement contains robust and precise provisions on procedures designed to resolve these matters.

Any questions? Contact the authors:

Dominik Karkoszka

Adam Czarnota

See also

Controversial amendment to the Commercial Companies Code


Latest Knowledge

Compulsory redemption of shares in a limited liability company

Shareholders who obstruct cooperation or do not fulfil their obligations may be excluded from company operations by an internal decision of the remaining shareholders, e.g. through the compulsory redemption of shares under Article 199 of the Commercial Companies Code.

A wave of NFT-related trademark applications

We have followed the trend in trademark applications for NFT-related protection and the conclusions are clear: what started as a trickle has become a flood, with tycoons from virtually every industry jumping on the bandwagon.

Why is it worth Polish companies seeking capital in foreign markets

For Polish companies, a dual listing brings prestige, money and opportunities for international growth. It is a chance to build global brands and achieve the best competitive position, but also to enhance liquidity and raise money for bold investments and necessary acquisitions.

Non-existent company resolutions

In order to protect shareholders against defective resolutions being used in transactions, the Commercial Companies Code provides, in principle, for a closed list of legal instruments.

An Overview of 2022 Tech Regulations

Before embarking on any New Year’s resolutions, it is worth starting with a moment of reflection on the year gone by. In the EU, 2022 brought a number of new regulations in the new technology market, so let’s take a closer look at them. The following is our selection of the most important developments and legislative initiatives to emerge in 2022, which will significantly influence further international and national IP/IT regulations.

Contact us:

Dominik Karkoszka

Dominik Karkoszka

Attorney at Law, Senior Associate

+48 608 317 340