Due to the limited number of clause types and the complexity of selecting vouchers for your business, it is recommended that you be assisted by a lawyer before deciding which clause(s) should be included in your shareholders` agreement. A Deadlock provision or Deadlock resolution clause is a contractual clause or series of clauses in a shareholders` agreement or other form of joint venture agreement that sets out how to resolve differences of opinion on key corporate governance issues. The parties typically do ambitious business to foster growth prospects, pool resources and ultimately increase shareholder returns. When establishing different cash flow and business growth chart forecasts, there is often not enough thought given to the future possibility of a business lock-in. (ii) the second part provides for an exit which deals with the situation in which the deadlock cannot be resolved by mutual agreement by consultation. If you are faced with a dead end, the simplest solution may be to liquidate the company. This clause may encourage shareholders to break the deadlock, as a fire sale might not lead to the company being sold for what it is worth. Therefore, shareholders may be incentivized to break the deadlock or sell their shares, as this would put them in a better financial position. A blockage can completely paralyze decision-making.
It is therefore in the interest of the JV partners that the JV Agreement and the statutes of the Joint Undertaking contain clearly defined deadlock provisions (including the blocking provisions and the resolution mechanism). Such fixed risk resolution mechanisms would, of course, depend on the objectives of each of the partners for the conclusion of the joint venture, participation, the financial capacity of shareholders and the current ceilings for foreign direct investment (FDI) under the Existing FDI policy of the Government of India. i) the first deals with the way forward to resolve the impasse, which usually consists of consulting or escalating the problem to the designated representatives of the JV partners (which are usually the senior/senior managers); and, as a general rule, the shareholders` agreement defines the conditions that must be met for a blockage to occur. It only applies to a decision that must be made by the shareholders (and not by the directors who may also be shareholders) and, as a general rule, not when there is a single undecided outcome.