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Resolving Stalemates: The Role of Deadlock Provisions Between Partners

by | May 31, 2024

What are ‘deadlock provisions’, and why are they essential to have?
Deadlock provisions are legal mechanisms included in partnership agreements or corporate documents to address situations where decision-making among stakeholders becomes deadlocked, potentially causing operational disruptions or disputes.
These provisions outline procedures to resolve deadlocks, such as mediation, arbitration, or the implementation of buyout mechanisms, ensuring that businesses can navigate impasses effectively and maintain continuity.
Understanding and implementing deadlock provisions are crucial for businesses to protect their interests and mitigate operational risks.
By incorporating clear deadlock provisions into agreements, businesses can proactively address conflicts, minimize disruptions, and safeguard the interests of all parties involved.
For a deeper understanding of deadlock provisions and their significance, click the video link below:



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Video Transcript:

two partners entered into an agreement
together there’s a deadlock provision where if the parties simply aren’t getting along and there’s absolutely no ability for the two sides to come to terms one partner can send a letter initiating the deadlock provision stating that I am going to buy you out
on fair market value so we’ll call them the acquiring partner now the defending partner so the other partner who didn’t make that demand now has the opportunity to to either agree and to be bought out for fair market value or that defending partner has the option pursue to that deadlock clause to go back to the initiating partner and say I’m going to buy you out for fair market value you
set it up like this there’s always going to be a potential risk to each party right so if I initiate that clause and say I want to buy you out or if I’m party a and party a says party B I’m going to buy you out I know that something’s going to happen right either I’m going be able to buy out party B but
I also know party B might be able to come back to me and say actually party a I’m buying you out and at that point the decision’s fine reason that that type of provision which may sound a little harsh
um is sometimes utilized It’s really because we want to avoid a dissolution petition and a dissolution petition is something that gets filed when the company is basically uh torn apart the assets get sold at an auction because the partners simply cannot work together so this allows for the company and
business to continue with one partner getting the benefits of having their equity purchased at a fair market value subject to an independent third party valuation um or the partner that uh
keeps the business gets to now carry on and even though they’ll be paying by equity, they will now be the 100% on.
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