Even Ownership. Even Votes. Endless Problems. How to solve DEADLOCK.
A perfectly balanced ownership split sounds fair on paper. Everyone gets equal say, everyone's interests align, right? But reality can be messy, especially with even splits like 50/50 or 25/25/25/25.
Here’s how you can proactively structure your business agreement to protect your startup from deadlock scenarios, without breaking your bootstrapper’s budget.
DISCLOSURE: This newsletter is provided for informational and entertainment purposes only and should not be considered legal advice. Always consult a professional attorney before finalizing agreements to ensure they fully protect your interests.
Clearly Define "Deadlock" in Your Contract
The first step to avoiding gridlock is explicitly defining what a "deadlock" actually means. Being clear upfront prevents arguments over whether you're even in a deadlock situation at all.
Clearly state which major decisions require unanimous or supermajority approval.
Specify the exact number of failed negotiation attempts before calling it a deadlock (e.g., two separate good-faith meetings).
Provide concrete examples of the kinds of decisions that could trigger deadlock, like pivoting, hiring key employees, fundraising, or exiting.
Write out explicitly that a deadlock means no resolution was possible after multiple genuine attempts.
Clarify who documents attempts to resolve the issue (such as meeting minutes).
Set Up a Tiered Resolution System
Prevent deadlocks from escalating into damaging conflicts by establishing a clear and simple escalation procedure from the start.
Cooling-off period: Pause for 3–5 days to reduce emotions and allow founders time to reconsider positions.
Mediation: Bring in an affordable neutral mediator to facilitate a compromise.
Binding arbitration: Agree upfront that an arbitrator’s final decision will be binding and enforceable if mediation fails.
Clearly document the timeline and the process for each step so everyone knows what to expect.
Using third-party neutrals early on can preserve relationships and keep your team intact.
Consider a "Shotgun" Buy-Sell Clause (The Ultimate Fairness Test)
A shotgun clause ensures founders act in good faith by forcing fairness in a deadlock situation. Here’s how it works:
If a deadlock occurs and can't be resolved, one founder group offers to buy out the other at a specific price per share.
The other side must either sell their shares at that price or buy the first group's shares at the same price.
Because the offeror could end up buying or selling, it incentivizes fairness in setting the buyout price.
It’s a practical, market-driven mechanism to resolve disputes without litigation.
Include clear, straightforward language in your agreement detailing exactly how this clause is triggered and executed.
Categorize Decision-Making Clearly (Who Decides What)
Avoid paralysis by explicitly categorizing decisions in your agreement:
Operational/Marketing Decisions: Let your business-focused co-founder handle these independently.
Technical/Development Decisions: Trust your dev co-founders to make the right call here, within agreed guidelines.
High-Stakes Strategic Decisions: Require full-group consensus or supermajority (such as fundraising, changing equity structure, or selling the company).
Clarify exactly which decisions fall into each category to eliminate ambiguity.
Regularly revisit this categorization to keep up with your startup’s growth and changing needs.
Final Thought: Get Ahead of Conflict (Before It Happens)
The best time to protect your startup is before conflicts arise. Clearly structured agreements save relationships, time, and money. The goal isn't about mistrust…it’s about clarity, efficiency, and maintaining forward momentum.
This newsletter is provided for informational and entertainment purposes only and should not be considered legal advice. Always consult a professional attorney before finalizing agreements to ensure they fully protect your interests.