There are two commonly-used mechanisms in a shareholders agreement for resolving a deadlock, which goes by the somewhat exotic names of ‘Mexican Shootout’ and ‘Russian Roulette’.
The ‘Mexican Shootout’ is easier to describe: if a deadlock occurs and cannot be resolved than either party can initiate the process to buy the other one out. If the business is owned 50/50, neither party should be given preferential treatment and the person who is prepared to pay the most for the other person’s share of the business wins.
This type of resolution doesn’t require the business to be valued, or for a minimum amount to be paid. Simply, the two owners bid against each other until there is no higher offer on the table.
The other option is called ‘Russian Roulette’. As the name suggests is that this is a one-shot deal. In the event of a deadlock, either party triggers the process by sending a notice to the other side stating a price. The recipient can then decide whether they want to either buy out or sell out their shares of the business at this price.
This idea works in practice because the person initiating the process doesn’t know if he’s going to be bought out, or if he’ll be the one buying out the other, so he should choose a reasonable, fair price.
Both of these methods provide an alternative to the company to become paralyzed or ‘frozen’ due to a disagreement. Of course, the business owners are always free to negotiate any other solution to the deadlock, but having these clauses in place means there is always a binding fallback solution which can be relied upon, if no other resolution can be found.