Dissolving Shareholders’ Interests: Managing Exits and Deadlocks

Shareholder exits are an inevitable part of a company’s life cycle. They may be planned or unexpected, amicable or contentious. Regardless of the reason, exits must be approached with structure and fairness. Without clear procedures, disputes can escalate quickly, damaging both relationships and value.

WHY EXITS BECOME CONTENTIOUS?

Exits commonly give rise to disagreement over:

• The valuation of the departing shareholder’s interest

• Who should buy or sell and on what terms

• The timetable for departure

• Ownership of company assets

• Ongoing involvement or restrictions on the departing shareholder

Clear exit mechanisms prevent these issues from becoming disputes.

DEADLOCKS: PREVENTABLE PARALYSIS

Deadlocks most frequently occur where voting rights are equal. They may arise from differences in strategy, investment appetite or direction. Without a predetermined mechanism, a company can become unable to act.

MECHANISMS FOR RESOLVING DEADLOCKS

Effective corporate documents provide structured solutions:

• Casting vote arrangements

• Buy-sell mechanisms (including “Russian roulette” and “Texas shoot-out” provisions)

• Pre-agreed valuation formulas or independent expert valuation

• Mediation or arbitration processes

• Drag-along and tag-along rights where a sale is proposed

Each mechanism introduces clarity where relationships may have deteriorated.

WHEN ASSETS ARE INVOLVED

Where companies hold significant assets, property, intellectual property or valuable equipment, exits must be managed with particular care. Tax implications, bank consents, guarantees, leases and ongoing obligations all require careful coordination.

A STRUCTURED EXIT PROCESS

A well-managed exit generally follows these steps:

1. Detailed review of constitutional documents

2. Identification of the applicable mechanism

3. Independent valuation of shares

4. Negotiation of buy-out or transfer terms

5. Drafting and execution of formal documentation

6. Compliance with tax and regulatory obligations

7. Updating statutory filings

A disciplined process protects value and reduces the risk of future challenge.

Exits and deadlocks are rarely simple, but they need not be destructive. When a company approaches these moments with structure, transparency and an honest assessment of what is fair, it creates the conditions for a resolution that preserves value on all sides. Even where views differ, a measured and principled process allows the business to move forward without unnecessary conflict. The aim is not simply to end a chapter, but to ensure that what follows remains stable.