Also known as: deadlocks · deadlocked · deadlocking · impasse · stalemate
Written by attorneys · grounded in primary & secondary sources — see below
A state of inaction in which directors or shareholders of a corporation cannot reach decisions on corporate affairs because of an equal division of voting power or irreconcilable disagreement. The condition prevents the corporation from conducting its business to the advantage of the shareholders generally and may support judicial dissolution when shareholders cannot break the impasse.
Diamond Manufacturing's four directors split evenly on whether to expand into a new product line. Two directors favored the expansion while the other two opposed it. The shareholders could not break the tie. The resulting inaction threatened irreparable injury by causing lost contracts and declining revenues, so a shareholder petitioned for dissolution under the statute.
Darius Dixon and Dwight Dorsey each owned fifty percent of Duffy Construction. At the last two annual meetings each voted against the other's slate of directors. The directors whose terms expired remained in office while major project approvals stalled. The prolonged failure to elect successors supplied grounds for judicial dissolution.
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Destiny Davis and Dustin Donovan formed Dawson Steel with equal ownership. Their shareholder agreement transferred authority to resolve any deadlock among directors to an outside arbitrator. When the board later split on a financing decision, the arbitrator's ruling allowed the corporation to proceed without dissolution proceedings.
Denise Donovan and Dominic Drake each held half the shares of Desert Oil. After the board deadlocked on strategy, the controlling faction diverted contracts to its own entity and denied Denise access to records. The combination of deadlock and oppressive conduct supported a petition for dissolution under close-corporation principles.
The shareholder must show that directors are deadlocked in managing corporate affairs, that shareholders cannot break the deadlock, and that the deadlock threatens irreparable injury or prevents the business from operating to the shareholders' general advantage.
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The deadlock must persist for a period that includes at least two consecutive annual meeting dates during which shareholders failed to elect successors to directors whose terms expired.
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Yes. Shareholders may agree in writing to transfer authority to resolve any deadlock among directors or shareholders to designated persons, and the agreement remains enforceable if it satisfies the statute's execution and notice requirements.
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No. A court may also consider whether those in control have engaged in oppressive conduct or wasted assets, and dissolution remains a discretionary remedy even when statutory grounds are met.
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…To secure dissolution of the ordinary close corporation subject to G. L. c. 156B, the stockholder, in the absence of corporate deadlock, must own at least fifty per cent of the shares (G. L. c. 156B, § 99 [a]) or have the advantage of a favorable provision in the articles of organization (G. L. c. 156B, § 100 [a] [2]). The…