In a 50:50 company neither owner can pass an ordinary resolution, because that needs a simple majority, so when the two fall out the company can stall at both shareholder and board level. The practical fix is a deadlock clause agreed at the start in the articles or a shareholders’ agreement. Without one, the routes are negotiation, an unfair prejudice petition under section 994 of the Companies Act 2006, or, as a last resort, a winding up on just and equitable grounds under section 122(1)(g) of the Insolvency Act 1986.

Why does a 50:50 company deadlock?

Section 282 defines an ordinary resolution as one passed by a simple majority, and section 283 sets a special resolution at not less than 75 per cent. Half the votes is not a majority, so a shareholder with exactly 50 per cent can neither pass an ordinary resolution nor be outvoted on one. The same applies to anything needing a special resolution, such as amending the articles under section 21 or directing the board under the shareholders’ reserve power in article 4 of the model articles.

The most important consequence is that neither owner can remove the other as a director. Section 168 allows removal by ordinary resolution at a meeting, with special notice, which section 312 requires to be given to the company at least 28 days before the meeting. With votes split evenly, the resolution simply fails. ACCA’s technical factsheet on shareholders’ agreements describes the danger directly: in a 50:50 company it becomes impossible to take any decisions if the parties fall out, because no one has a majority, and the position quickly becomes untenable.

Is the board deadlocked as well?

Usually, because the two owners tend to be the only two directors. Under the model articles, directors decide by majority at a meeting or unanimously under article 8 (article 7(1)). Article 11(2) sets the quorum at two unless fixed otherwise, so one director staying away prevents any vote, and article 8(4) stops a unanimous decision being taken without a quorum either.

The casting vote is the detail people miss. Article 13 gives the chair of a directors’ meeting a casting vote when votes are equal, unless the chair cannot be counted for that decision because of a conflict (article 13(2)). Under article 12 the directors appoint the chair, so whoever holds that role can break board ties, which is why a 50:50 board often cannot agree who should chair. The casting vote applies to directors’ meetings only; it does not resolve an equal split among shareholders. See board meetings for the procedure.

What happens to the company while it is stuck?

Statutory duties carry on regardless of the dispute. Section 442 gives a private company nine months from the end of its accounting reference period to file accounts, and section 853A requires a confirmation statement within 14 days after each review period. Missing these brings penalties and can lead to strike off, as explained in Companies House deadlines and penalties. Dividends also stop: article 30(2) prevents a dividend being declared unless the directors have recommended an amount.

Deadlock often turns into exclusion, where one owner controls the bank account and day to day trading while the other is shut out. ACCA lists exclusion from management, and disagreement over key decisions such as a sale, among the most common small company disputes.

What can a deadlock clause do?

ACCA notes that a shareholders’ agreement can include a binding process that results in one party buying the other out or the business being sold quickly, either through each shareholder bidding for the other’s shares or through a third party making a binding decision, and stresses that such clauses must be carefully considered and professionally drafted. Common building blocks include:

  • Escalation and mediation. A cooling off period, then referral to an agreed mediator before any buyout mechanism starts.
  • A tie breaker. An independent chair with a casting vote, or an expert who decides defined operational questions.
  • Buy sell mechanisms. Arrangements often called Russian roulette or Texas shoot out clauses, where one owner names a price and the other must either buy or sell at it, or both submit sealed bids.
  • Options at fair value. Put or call options triggered by deadlock, priced under a valuation clause. See fair value clauses in share transfers.
  • A winding up backstop. An agreement to vote for a voluntary winding up, which section 84(1)(b) of the Insolvency Act 1986 allows by special resolution.

Putting these in a shareholders’ agreement rather than only in the articles is common, because a contract between the owners gives each a direct claim for breach.

What can the shareholders do under the Companies Act?

Section 303 lets members holding at least 5 per cent of the paid up voting capital require the directors to call a general meeting. Under section 304 the directors must call it within 21 days, for a date not more than 28 days after the notice; if they do not, section 305 allows the requesting members to call it themselves within three months.

A meeting needs a quorum. Section 318(2) sets it at two qualifying persons unless the articles provide otherwise, so the other owner can stay away. Section 306 lets the court order a meeting where it is impracticable to call or conduct one, and section 306(4) allows a direction that one member present is a quorum. But a meeting, however called, does not change the arithmetic: an evenly split vote still fails under section 282.

What can the court do?

Section 994 allows a member to petition on the ground that the company’s affairs are being conducted in a manner unfairly prejudicial to the interests of members, including the petitioner. Under section 996 the court may make any order it thinks fit, including regulating the company’s future conduct or ordering the purchase of the petitioner’s shares by other members or by the company. ACCA’s factsheet uses Irvine v Irvine as an example: the court found unfair prejudice and ordered a buyout, which led to further litigation about valuation. These cases are slow and expensive. Our page on minority shareholder protection covers the statutory rights in more detail.

Where the relationship has broken down completely, section 122(1)(g) of the Insolvency Act 1986 allows the court to wind up a company if it considers it just and equitable to do so. That ends the business rather than preserving it, so it is normally a lever for negotiation rather than the goal.

How does a deadlock play out without a clause?

Illustration only. Sam and Alex each hold 50 of the 100 ordinary shares in a company with unamended model articles, and both are directors. There is no shareholders’ agreement. Alex wants to sell the business; Sam refuses.

  1. Alex calls a board meeting to approve marketing the business. Sam does not attend, so there is no quorum under article 11.
  2. Alex requisitions a general meeting to remove Sam as a director. Even if a meeting is held, the vote is 50 for and 50 against, and the resolution fails.
  3. Sam continues to run the bank account and stops paying Alex’s salary. Alex now has the basis for an unfair prejudice petition seeking a buyout order, at significant cost to both.

Had they signed an agreement at the start with a mediation step and a buy sell clause, Alex could have started a defined process with a known end point within weeks.

What mistakes do 50:50 owners make?

  • Relying on goodwill and leaving model articles unamended, with no deadlock mechanism.
  • Assuming the chair’s casting vote at board level solves shareholder deadlock.
  • Drafting a buyout clause with no valuation method or timetable.
  • Letting statutory filings lapse during the dispute, adding penalties and director exposure.
  • Ignoring the tax on exit: a sale to the other owner and a company buyback of shares are taxed differently.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.