A CFO called me one morning with a simple problem.
“We haven’t been able to pass a single board resolution in four months.”
I asked: What does your Shareholders’ Agreement [SHA] say about deadlock?
Silence!!
Two promoters. 50:50 shareholding. Years of partnership. SHA drafted quickly, standard template, lawyer approved, both signed.
Nobody asked: what happens if we disagree?
Eventually, they did.
A capex decision. One wanted to expand. The other didn’t. Neither had majority. Capital allocation, new hires, vendor contracts, bank signatories, all stalled.
For four months, the business ran on inertia. Vendors waited. Employees were uncertain. A lender’s covenant review was approaching.
The SHA had no deadlock clause.
No escalation. No cooling-off. No casting vote. No buy-sell provision. No exit trigger.
What it should have included:
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Deadlock definition: number of failed resolutions, time period, threshold
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Escalation mechanism: management → promoters → independent mediator, with defined timelines
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Buy-sell provision: one partner names a price, the other buys or sells. Forces a fair number.
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Reserved matters vs. routine decisions: not everything needs consensus. Designate a decision-maker for operations.
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Independent Director with casting vote: appointed jointly, breaks operational deadlocks without triggering exit.
The SHA is the constitution of your partnership.
Draft it for the day things go wrong, not for the day everything feels right.
Most 50:50 SHAs in Indian JVs skip the hard clauses because nobody wants to seem distrustful.
That courtesy is expensive.
Have you seen a 50:50 JV where deadlock became a real problem? What resolved it?
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