Two friends, two colleagues or two siblings set up a company and split the capital 50/50. It is a very common arrangement, and it can work for years without trouble, because decisions are made by talking. The law does not come into play while there is agreement. It comes in when agreement ends, and then 50/50 shows its less friendly side: neither can impose anything on the other.
Why it deadlocks
At the general meeting, ordinary resolutions require a majority of the votes validly cast (article 198 of the Spanish Companies Act). With two 50 % shareholders voting differently, no majority is possible. The accounts are not approved, no dividend is either paid or withheld, nobody is appointed or removed.
If management is also in the hands of two directors acting jointly, one per partner, the deadlock moves from the meeting to daily business: no contract is signed, no significant invoice is paid, nobody is hired. And if they act individually, the risk is the opposite: each can act alone, and the conflict becomes a war of signatures in which each partner undoes what the other did.
The exit the law offers, and why it is rarely the right one
When the company's bodies are paralysed so that they cannot function, article 363.1.d) of the Spanish Companies Act treats it as grounds for dissolution. If the general meeting does not resolve to dissolve, and in a deadlock it will not, article 366 allows any interested party, and requires the directors, to ask the court to dissolve the company.
The court does not decide who is right or who keeps the business. It dissolves, and the company is wound up. For a working company, that usually means destroying value: assets are sold for what they fetch and whatever remains is shared out. That is why court-ordered dissolution works better as leverage in negotiation than as a destination.
What to agree beforehand: deadlock mechanisms
The way to avoid reaching that point is to write down, while there is still agreement, what will happen when there is not. The usual tools, from mildest to strongest, are:
- Defining deadlock. For example, the same matter voted on twice at separate meetings without a majority. It seems a detail, but without that definition none of the following mechanisms is triggered.
- Negotiation and mediation. A short period of direct negotiation and, if that fails, mediation with a mediator already named. It has one simple virtue: it forces people to sit down.
- Independent expert or arbitration. For specific matters, an expert or an arbitrator decides. Arbitration can be included in the articles of association, although article 11 bis of the Spanish Arbitration Act requires two thirds of the votes attached to the capital to do so, which between two 50 % shareholders means, in practice, that both must agree.
- Shotgun clause. One partner names a price per share, and the other chooses whether to sell at that price or buy at the same price. It forces a fair price, because whoever sets it does not know which side they will end up on.
- Texas shoot-out. Each submits a sealed bid, and the higher bidder buys the other's stake.
The last two resolve the conflict by separating the partners, which is usually what is needed in the end. They have a known weakness: they favour the partner with more cash. If one cannot afford to buy, the mechanism always turns them into the seller. Payment periods or financing should be provided for.
All of this goes into the shareholders' agreement, with whatever must also go into the articles so that it holds against the company too.
If the deadlock has already arrived
Without clauses in place, the room for manoeuvre shrinks, but it does not disappear. The sensible order is:
- Separate management from ownership. Sometimes the fight is over who runs the company, not who owns it, and it is solved with a professional manager or a clear division of roles.
- Negotiate one partner's exit. It is usually the cleanest solution: one buys out the other using an agreed valuation method and staged payment with guarantees.
- Look at structural alternatives, such as a demerger if the business can be split in two.
- And only then, court-ordered dissolution, used for what it is: the argument that pushes the negotiation forward.
We have written in more detail about the routes for a shareholder to leave the company, which are harder to apply in a 50/50 but still exist.
What to do this week
If you are incorporating 50/50, spend one meeting agreeing how deadlock will be broken before you sign. If you are already deadlocked, gather the articles, the shareholders' agreement if there is one and the latest accounts, and do not send any formal notice before you know what exits you have.
If you would like to go through it with us, the initial consultation is thirty minutes, costs 60 euros plus VAT, and ends with a concrete recommendation on the path that suits you.
This article contains general information for informative purposes and does not constitute legal advice or an investment recommendation. The rules cited may have been amended after publication; always check the text in force before taking a decision.