Equal ownership is not yet a balanced model
Founders often choose a 50/50 split because it appears fair. It can work while both people share a vision and remain similarly involved.
A conflict may nevertheless prevent management changes, adoption of a budget, new financing, a capital increase, a material contract, a dividend or the sale of the company.
The combination of equal ownership with a two-person management board on which each member can block the other is particularly risky.
Not every disagreement should constitute a deadlock
The shareholders’ agreement should identify which events amount to a genuine impasse.
A deadlock might arise if a resolution on a reserved matter fails twice or if the budget cannot be approved for a defined period.
An overbroad definition permits exit procedures to be triggered by an ordinary operational disagreement. A narrow definition may fail to capture the event that actually paralyses the company.
Escalation should be the first stage
Before a compulsory buyout becomes available, the documents should require a written notice of dispute, a shareholder meeting, proposals from both sides, mediation or expert involvement and a cooling-off period.
An independent expert may resolve a valuation, accounting or technical issue. If the dispute concerns the strategic direction of the business, outsourcing the question does not reconcile the shareholders’ interests.
The company must continue operating during the dispute
A deadlock process may take months. The documents should state how the company operates in the meantime.
The company may continue under the last approved budget and perform existing contracts. Special rules may cover taxes, salaries, emergency funding and actions necessary to protect assets.
Without continuity rules, a shareholder dispute quickly becomes a problem for employees, customers and creditors.
Buy-sell mechanisms require economic balance
If the dispute cannot be resolved, one shareholder may buy out the other. Under a Russian-roulette mechanism, one shareholder names a price at which it is prepared to buy. The recipient may sell or elect to buy the initiator’s shares at the same price.
Under a sealed-bid model, the shareholders submit confidential prices and the higher bidder obtains the right to buy.
These mechanisms are most credible when both parties have comparable access to finance. If one is much stronger financially, formal symmetry may produce a transfer below fair value.
Call and put options should be tied to specific events
A call option may permit a shareholder to buy the other party’s shares after a serious breach. A put option may allow a shareholder to require the other party to buy its shares in a defined situation.
The documents should regulate the triggering events, price, exercise period, payment and security, cooperation with the transfer and the consequences of refusing to sign.
The mechanism’s enforceability must be checked against the formal requirements for Polish share transfers and any restrictions in the articles of association.
Valuation should not begin only after conflict arises
The price may be based on market value determined by an independent valuer, an agreed multiple or a performance-based formula.
The documents should define the valuation date, value standard and treatment of debt, shareholder remuneration and one-off events. Otherwise a management dispute will simply be replaced by a pricing dispute.
A breach may justify an appropriate price adjustment, but the sanction should remain proportionate to the nature and effect of the breach.
Some provisions belong in the articles of association
A shareholders’ agreement binds its parties, but not every mechanism in it automatically affects the company or third parties.
The parties should decide which rules must also appear in the articles—for example management appointments, voting majorities, transfer restrictions and personal shareholder rights.
The two documents must be consistent. A conflict between them is most likely to matter precisely when the shareholder relationship has already broken down.
What if the conflict has already started?
Even without an existing deadlock clause, the parties can agree interim governance, a buyout or a joint sale of the business.
The first priority is to protect the company’s ongoing operations and records. The parties can then work towards a realistic separation structure.
How the issue appears in practice
Hypothetical example: the seasonal budget is blocked
Two equal shareholders each appoint one board member. They fail to approve the marketing budget before the key season, and the documents contain no interim-budget or escalation rule. A better structure would define when the failure becomes a deadlock, preserve limited operations and use an exit mechanism only after escalation fails.
Matters to determine or verify before proceeding
- Matters whose non-approval would genuinely paralyse the company
- Number of failed votes and time required to create a deadlock
- Escalation, mediation and expert-determination scope
- Interim budget and permitted actions during the dispute
- Both parties' access to financing for a buy-sell process
- Valuation method, date, debt and one-off adjustments
- Formal enforceability of options and share transfers
- Terms that must also appear in the articles
Key issues at a glance
| Issue | Key information |
|---|---|
| Deadlock | Repeated failure to decide a defined key matter |
| Escalation | Negotiation, mediation or expert input before compulsory buyout |
| Continuity | Interim budget and protective actions keep the business operating |
| Buy-sell | Requires economic balance and realistic financing access |
| Valuation | Formula, date and adjustments should be agreed before conflict |
Legal basis
- Polish Commercial Companies Code of 15 September 2000, including the rules on shareholder resolutions, corporate appointments and share transfers
- Polish Civil Code of 23 April 1964, including freedom of contract, preliminary agreements and performance of obligations
This article provides general information and does not constitute legal advice for a specific matter. The appropriate solution depends on the facts, documents and business objective.
Summary
A well-designed deadlock mechanism protects business continuity first and structures a shareholder separation only if escalation fails. The impasse definition, valuation and buyout process should be agreed before the parties' interests diverge.