The Business Divorce Law Report
- Deadlock is the inability of the owners of a business to make critical decisions, a paralysis of the management of closely held corporation, limited liability company or partnership.
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The inability to maintain normal operations is a characteristic of a deadlocked business.
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Courts will intervene to prevent harm to a deadlocked corporation, LLC or partnership, typically when one of the owners petitions to dissolve the business.
Deadlock occurs when the owners of a closely held business, be it a close corporation, partnership or limited liability company, are unable to reach a decision on some matter involving the business. Because deadlock is typically associated with businesses in which most or all of the owners participate directly in management, they are characterized by emotions, self-interest and not always rational.
A Series Examining Deadlock Among the Owners of Closely Held Corporations, Limited Liability Companies and Partnerships
In the simplest case, two 50/50 owners are unable to come to some decision that is critical to the business, for example whether to provide additional capital or give personal guarantees to a lender. Because the ownership is equally shared, the principals have to govern by consensus, or not at all. This is true whether it is a corporation, limited liability company or partnership. Continue reading
Is an intractable deadlock among the shareholders good grounds to force the sale of a large, successful corporation? That was the issue before the Delaware Supreme Court in a case in which the trial court’s decision to sell the business as a going concern – over the objection of one shareholder –was affirmed by the Supreme Court.
Courts loathe the appointment of receivers. First, it is often the death knell to any viable business. The appointment of a receiver is commonly good cause to default on virtually any well-drawn contract, and it send anyone otherwise interested in doing business running for cover.
