Designs that are commonly used
A deadlock resolution clause usually starts with escalation, moving the dispute from managers to senior executives or owners, and then to mediation. If that fails, many agreements give one side a deciding vote on defined subjects, bring in an independent director, or send specific issues to arbitration. The most forceful designs are buy-sell mechanisms, in which one owner names a price and the other must either buy or sell at that number. Each design favors someone: a buy-sell mechanism tends to favor the owner with more cash, and a deciding vote shifts power to whoever holds it. The right clause depends on which decisions are likely to stall and how much control each owner can afford to give up.
When there is no workable clause
Without a clause that works, owners may be left asking a court to dissolve the business. New York law allows petitions for judicial dissolution of corporations and LLCs in deadlock situations, but the standards differ between the two, and courts treat dissolution as a serious remedy rather than a routine fix. Deadlock litigation also tends to pull in claims of mismanagement and breach of fiduciary duty, which lengthens and sharpens the dispute. A clause that resolves the impasse privately, even imperfectly, is usually far less costly than that path.
Drafting or invoking the clause
When drafting, we look at the decisions most likely to stall, such as budgets, financing, hiring, or a sale of the company, and design the mechanism around those rather than around every decision. Valuation methods, funding timelines for a buyout, and the definition of a deadlock all need precise wording. When a deadlock already exists, we read the clause as written, check whether its triggers have been met, and plan the notices in the required order, because skipped steps invite challenges. Bring the operating or shareholders' agreement, all amendments, and the communications showing where the impasse arose.
