Deadlock in corporate joint ventures

Published by a ��˾��ҹ�� Corporate expert

Practice notes

In-house

Deadlock in corporate joint ventures

Published by a ��˾��ҹ�� Corporate expert

Practice notes

In-house

A joint venture in which two joint venture parties each owns 50% of the shares of the joint venture company (jvc) is sometimes known as a deadlocked or deadlock joint venture. In such a joint venture, the joint venture parties must reach agreement on any decisions to be taken by the JVC; if they cannot agree on a certain course of action, the action will not be taken ie the status quo will be maintained.

When will deadlock be an issue?

The structure and management of a 50/50 joint venture will usually reinforce the deadlock position, eg:

•
each joint venture party will be able to appoint an equal number of directors to the board
•
the joint venture parties will take turns to appoint the chair of the board and the chair will not have a casting vote
•
each joint venture party will have equal voting rights, both at board and shareholder level
•
advance notice of matters to be discussed at board and shareholder meetings may be required to be given to each joint venture

Jurisdiction(s):

United Kingdom

Key definition:

Deadlock definition

What does Deadlock mean?

This is where the parties cannot reach agreement upon a particular matter which requires their approval. A joint venture company in which two shareholders each own 50% of the shares is known as a deadlocked or deadlock joint venture, as the shareholders need to reach agreement on all matters for a decision to be taken. A deadlock may also arise where the joint venture is not held 50/50 in relation to reserved matters which require the approval of all joint venture parties. Joint venture agreements will typically contain deadlock provisions for breaking a deadlock.

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