Decision-making deadlocks? How should you be dealing with them?

Effective decision – making is an integral part of running any Business or Company.

In essence, Companies are governed by the democratic principle on both Shareholder and Board level. This means that the majority rules both on Shareholder and on Board level.

The role of a Shareholder and Director are distinctly different from one another. Sound governance principles are vital in avoiding decision – making deadlocks on both levels and further, to maintain healthy relationships between Shareholders and Board members.

Shareholders own shares in the Company.  They are, therefore, Investors who are vital in making individual decisions. Directors, on the other hand, are Members of the Board and attend to the day- to- day running of the Company.

Both Board and Shareholder decisions are made by way of resolution.

So, what happens in a deadlock?

A deadlock is a situation, typically one involving opposing parties, in which no progress can be made. In essence, this means that equal amounts of votes are both for and against a decision.

Deadlocks can be easily avoided in Shareholder’s meetings by dividing the shareholding in such a way that all combinations lead to a majority vote or casting vote. This, of course, does not ensure that all decisions or processes will be dispute- free. At least avoids the apparent threat of a deadlock when a Company is owned by, for example, two Shareholders each holding 50% of the shares.

Directors generally only have one vote each, however many Companies afford the Chairperson of the Board an additional vote or casting vote, usually exercised in cases of deadlock.

Where deadlocks arise on Shareholder or Board level, consultation with an Independent Expert, mediation or arbitration can aid in the breaking of an impasse. However, where this fails, the repercussions may be devastating, and the Company is wound up.

Careful thought into shareholding and constituting a board therefore goes a long way to avoid deadlock eventualities.

PocketAdvisor teaches users to identify various critical relationships and legal structures vital to achieving business success.  In addition, we provide all the relevant legal structures, documents and contracts needed. For more information please contact us or enrol for a program with us today!

Our Articles

Effective Debtor Management

Effective Debtor Management

Healthy cash flow is the lifeblood of every business, regardless of its size. It ensures that creditors are paid (including employees) on time,...