50/50 in Business: How to Protect Yourself from Deadlock Situations?
A partnership on equal terms is the dream of many entrepreneurs. Two founders, full of energy and ideas, share the business “equally” to keep everything fair. Fifty–fifty sounds attractive — a symbol of justice and trust. Yet this very “ideal” model often leads to the most painful corporate conflicts. Why? Because it lacks the essential element — a deadlock resolution mechanism.
Conflict of interests with equal shares: a scenario to be prepared for.
At the outset, partners usually look in the same direction. They are united by a goal, driven by the project. Over time, however, their views diverge: one dreams of attracting an investor and doubling the team, the other focuses on sustainable growth through own revenue; one favours team expansion, the other prioritises cost saving. And if both hold 50% of the votes, any disagreement may turn into a prolonged conflict where no decision can be made without the other’s consent. Meanwhile, the business stalls. The longer the deadlock persists, the more harm it causes to the company, the team, and ultimately to the partners themselves.
How to set the rules of the game at the outset?
The good news is that legal practice has accumulated an arsenal of tools that should be incorporated in the articles of association or in a shareholders’ agreement from the very beginning — in case the partners cannot agree in the future. Some of them are set out below.
1. Split Voting & Equal Profit Sharing
One way to avoid deadlock is to structure the share capital so that one of the partners holds a majority of votes while dividends are still distributed equally between the parties.
The structure of such a mechanism varies across jurisdictions and depends on the company’s legal form, but the general principles are:
in joint-stock companies, this instrument is usually implemented by issuing different classes of shares with clearly defined rights set out in the company’s articles;
in limited liability companies (where capital is divided into participatory interests), it is usually possible for the members to decide to distribute profits disproportionately to their participation interests. Thus, even with unequal shares — and therefore unequal voting rights — profits may still be distributed equally. This structure allows one partner to make managerial decisions while maintaining financial equality between the parties.
2. Split Authority & Rotating Management
A less common but possible approach to prevent deadlock is to predetermine in which areas each partner has the final say.
For example, one partner takes final decisions on staffing matters: hiring, dismissal, compensation, options. The other partner has the final say on marketing, budgeting, or other key areas. This approach clearly delineates areas of responsibility and minimises the risk of blocking decisions.
By agreement, partners may periodically exchange roles — for instance, every six months or once a year. This maintains a balance of influence and allows flexible response to changes in the company. In this case, the model acquires features of rotating management and requires particularly precise documentation of the terms, the transfer procedure, and the list of areas concerned.
3. Casting Vote
The mechanism of a casting vote enables one of the partners to take the final decision in the event of a tie.
When using this instrument, it is crucial to define in the articles or shareholders’ agreement how it operates, namely:
whether the casting vote applies to all matters or only to a limited list;
whether it operates indefinitely or only for a certain period (for example, during the development stage or until an investor is brought in);
whether it is triggered automatically in the event of a tie, or only after a specific procedure, e.g., following a second vote on the same issue or after consultation with an independent expert or mediator.
It is particularly important to ensure precise wording, avoid double interpretation, and consider how this mechanism interacts with other provisions of the corporate documents governing general meetings and vote counting.
4. Independent Expert, Arbitrator or Mediator
In case of conflict, the decision may be referred to a neutral third party — an independent expert, arbitrator, or mediator. This helps preserve working relationships and avoid court proceedings.
Partners may agree in advance on the option of seeking advice from an independent expert — an industry specialist or experienced consultant recognised in the relevant field. The shareholders’ agreement should stipulate the appointment mechanism (for example, from among candidates proposed by business associations or consultancy firms) and define whether their conclusions or recommendations are binding. This approach allows disputes to be resolved quickly and impartially, relying on professional judgement.
Alternative dispute resolution methods — arbitration and mediation — help to avoid lengthy and costly litigation.
Arbitration involves referring the dispute to an independent arbitrator (or arbitral tribunal), who issues a decision based on the evidence and arguments of the parties. Such decision is generally legally binding and enforceable.
Mediation, unlike arbitration, is based on voluntariness and cooperation. A professional mediator assists the parties in finding a mutually acceptable solution, helping to ease tensions and preserve business relations. This method is particularly valuable when the partners are interested not only in resolving a specific conflict but also in continuing their joint business development.
5. Put Option
A put option grants a partner the right to require the other to buy out his/her share at a price calculated under a pre-agreed formula or on the basis of a valuation of market value. This may provide an effective way out of a deadlock when joint business is no longer possible.
However, in practice, determining the fair value of the departing partner’s share may pose difficulties. Different valuers may apply different methodologies, which can lead to significant discrepancies in the final amount. Moreover, the company’s value may fluctuate considerably over time, especially in fast-growing or volatile sectors.
Without a clear and unambiguous formula or a predetermined valuation method, such a mechanism risks failing. Instead of resolving the conflict, partners may face a new dispute — this time about the fairness of the valuation, the calculation methods, and the binding nature of execution.
To avoid this, the option agreement must regulate in detail the procedure for appointing a valuer, the valuation methodology, the execution process, and the consequences of non-compliance.
6. Russian Roulette Clause
If the parties reach deadlock, one partner proposes a price for the other’s share. The other must either sell his/her share at that price or buy out the proposer’s share on the same terms.
This is a radical but effective way of quickly resolving conflict — particularly where both parties are confident in the strength of their position.
Can everything be foreseen in advance?
No, but the essentials can be. The main mistake is thinking “we’ll sort it out if necessary”. The time to agree on what happens if relations deteriorate is precisely at the stage of establishing the company, while relations are still good.
Lawyers are able to design “safety nets” — shareholders’ agreements that prevent the destruction of a business in the event of a conflict. Ideally, one should define exit scenarios, pricing mechanisms, roles, and triggers that activate particular mechanisms.
And if it’s already too late?
If deadlock has already occurred and nothing was provided for in advance, the remaining options are negotiations, external mediation, or share/buy-out transactions involving third parties. The sooner a lawyer is involved, the greater the chance of preserving the business and reputation.
Conclusion: Equal does not mean safe. If you launch a business with equal shares, make sure you have clear, written, legally enforceable deadlock resolution mechanisms. It is better to spend time designing the rules of the game than to lose the business because of a dispute.
Authors: Viktoria Markova, Irina Kuheika
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