Deadlock between owners is one of those problems that seems abstract when you form the company but becomes very real, very quickly, when it happens. In Michigan, closely held corporations, LLCs, and partnerships are often built on personal relationships, family ties, or long-standing business friendships. When those relationships sour or the owners simply reach a fundamental disagreement about the company’s future, the result can be a deadlock that paralyzes decision-making. This article explains what “deadlock” means in a Michigan business context, why it is so dangerous, and what practical and legal options are available when owners simply cannot agree.
In broad terms, deadlock arises when the individuals with authority to make key decisions are evenly divided, so that no side has enough voting power to move forward. It is especially common where there are two equal owners, or a small number of owners split into evenly matched factions. In corporations, this might show up as a board of directors that cannot reach the required majority on important issues. In LLCs, it often appears when members holding equal ownership interests disagree about major company actions that require member approval. The legal structure matters because Michigan law treats corporations, LLCs, and partnerships somewhat differently, but the central problem is the same: without agreement, the company cannot act, contracts go unsigned, capital infusions are delayed, opportunities are missed, and day-to-day operations may begin to drift. Over time, this stalemate can damage the value of the business that all owners are trying to protect.
Most Michigan business owners do not set out expecting to fight with their partners. At the formation stage, optimism is high and money is usually tight, so many people rely on generic operating agreements or shareholder agreements copied from the internet, or they skip formal agreements altogether. That choice can be costly later. Under Michigan law, when an LLC operating agreement or a corporation’s bylaws and shareholder agreements are silent on a key issue, the default statutes step in. For corporations, the Michigan Business Corporation Act provides the baseline rules; for LLCs, the Michigan Limited Liability Company Act does the same. These statutes are designed to be broadly workable, but they are not tailored to the owners’ unique relationships, and they may not provide effective mechanisms for resolving real-world deadlocks. When the documents are thin and the statutes are generic, owners are left with fewer private tools to break an impasse and may be forced into expensive, uncertain litigation.
The contexts in which deadlock surfaces are as varied as the businesses themselves. Owners might clash over whether to distribute profits or reinvest them in growth, whether to expand into a new market, whether to hire or fire a key executive, or whether to sell the company altogether. Sometimes the disagreement is fundamentally strategic, reflecting different visions of risk, growth, and control. Other times, the conflict grows from more personal grievances: one owner may believe another is not pulling their weight, is diverting opportunities, or is failing to communicate. In family businesses, deadlock can be tangled up with decades of family history, making compromise even more difficult. The common thread is that unresolved disagreement on major issues prevents the company from acting decisively, which in turn can erode confidence among employees, lenders, and customers.
Michigan law provides several formal remedies when an internal stalemate becomes unmanageable, but these remedies are not quick or painless. In the corporate context, a shareholder may ask a court to intervene under certain provisions of the Michigan Business Corporation Act if the directors are deadlocked and the shareholders cannot break the tie, particularly when the stalemate is harming the corporation or threatening its ability to continue operating. In serious cases, a court has the power to order equitable relief, including the appointment of a provisional director or, in extreme circumstances, judicial dissolution of the corporation. Similarly, under the Michigan LLC statute, a member can petition the court for dissolution if it is not reasonably practicable to carry on the business in conformity with the operating agreement, which can include situations where management is effectively paralyzed by disagreement. These remedies are powerful, but they are also drastic, and they usually come at significant financial and emotional cost to everyone involved.
Because judicial remedies can be so disruptive, Michigan owners should view them as last resorts, not first options. Before heading to court, it is often worthwhile to explore private mechanisms for resolving or at least managing a deadlock. Many well-drafted operating agreements and shareholder agreements include tie-breaking tools designed specifically to avoid institutional paralysis. For example, some agreements give a neutral outside director or manager a casting vote on certain decisions. Others designate an outside advisor whose recommendation will control if the owners cannot agree. Still others provide that if the owners deadlock on a material matter and cannot resolve it within a defined period, specified issues will automatically be submitted to mediation or arbitration. These mechanisms do not guarantee harmony, but they can offer a structured path forward that keeps the company functioning while the owners work through their differences.
One of the most important categories of contractual tools for dealing with deadlock involves ownership transitions. Disagreements often arise because two equal owners no longer want to be in business together, but neither wants to walk away empty-handed. Buy-sell agreements are designed to address this problem in advance. In Michigan, buy-sell provisions can be incorporated into shareholder agreements, operating agreements, or separate contracts. They typically specify when an owner can or must sell their interest, how the interest will be valued, and how the purchase will be funded. In a deadlock context, a buy-sell may allow one owner to trigger a process under which either side can buy out the other at a price set by formula, appraisal, or agreed-upon mechanism. If carefully drafted, these provisions can convert a bitter stalemate into a structured exit for one or more owners, preserving the business and delivering fair value.
There are many variations on buy-sell mechanisms, and some are specifically tailored to deadlock situations. One common model is sometimes called a “shotgun” or “Russian roulette” provision. Under this approach, if the owners deadlock on key issues and cannot resolve them, one owner may offer to buy the other’s interest at a specified price per share or per unit. The other owner must then either accept the offer and sell or instead choose to buy the first owner’s interest at that same price. The theory is that the party setting the price will be motivated to choose a fair number, knowing it may end up on either side of the deal. While these provisions can be extremely effective, they are not appropriate for every relationship. If one owner has significantly more access to capital than the other, a shotgun clause can function less as a balanced mechanism and more as a weapon. Careful drafting and thought about the owners’ real-world positions are therefore essential.
In addition to formal buy-sell tools, owners can include other contractual provisions that reduce the likelihood or impact of deadlock. For instance, they might agree that certain major decisions require unanimity but that others can be made by a simple majority or supermajority, thereby reducing the number of issues that can bring the company to a standstill. They might separate economic rights from governance rights by issuing different classes of stock or membership units. In some cases, founders intentionally give one owner a small additional voting interest, or a tiebreaking role as manager or board chair, so that there is always a clear decision-maker after good-faith discussion. These allocation choices should be made with care and documented clearly, so that everyone understands how decisions will be made and what happens if they disagree.
When a deadlock has already arisen and the governing documents offer little help, Michigan owners still have practical steps they can take before filing a lawsuit. Engaging a neutral mediator with experience in closely held business disputes can be surprisingly effective. Mediation provides a confidential forum in which owners can express their concerns, test possible solutions, and explore creative arrangements that might not be available through formal legal remedies. Sometimes, owners can agree to buyout terms in mediation that balance price, payment structure, and non-monetary terms such as non-competition commitments or ongoing consulting arrangements. Other times, the process clarifies that the best solution is to wind down or sell the business entirely, but in a controlled way that protects employees, creditors, and customers.
If the relationship between owners has deteriorated severely, arbitration may be another option where the governing documents provide for it or where the parties agree to it after the fact. Arbitration is typically more formal than mediation but more flexible and private than a court case. An arbitrator can resolve specific disputed issues, interpret ambiguous contractual terms, or in some cases oversee the implementation of a buyout or dissolution mechanism provided in the contracts. For Michigan companies, arbitration can be especially appealing where confidential information, trade secrets, or sensitive family matters are involved, since the process generally occurs outside the public eye. However, arbitration still involves cost and risk, and the parties will need to live with the arbitrator’s decision, which is often difficult to appeal.
When neither mediation nor private agreements suffice, Michigan courts serve as a backstop. In an LLC, for example, a member may petition for judicial dissolution when it is not reasonably practicable to carry on the business in conformity with the operating agreement. In evaluating such petitions, courts consider factors such as whether the members are able to work together, whether the purpose of the company is being fulfilled, and whether the operating agreement provides alternative methods for resolving the impasse. In the corporate context, courts may intervene where the directors are so divided that the corporation’s business can no longer be conducted to the advantage of the shareholders. Judicial dissolution effectively ends the company’s life, with its assets liquidated or sold and the proceeds distributed after debts are paid. This is a drastic remedy, akin to corporate divorce, and it often destroys value that might have been preserved through a negotiated solution.
Given the severity of these outcomes, Michigan business owners should focus heavily on prevention. The best time to plan for deadlock is before it happens, when relationships are strong and everyone can think clearly about what would be fair if they later disagree. Working with knowledgeable counsel, owners can adopt detailed operating agreements or shareholder agreements that address governance structures, voting thresholds, roles and responsibilities, exit rights, and dispute resolution mechanisms. These documents should be revisited periodically as the business grows, new investors join, or the owners’ circumstances change. It is far easier to adjust provisions proactively than to argue later that a vague or outdated clause does not mean what it appears to say.
Owners should also be realistic about the human side of deadlock. Legal tools and contractual provisions are only as effective as the people using them. Open communication, regular meetings, and clear documentation of decisions can all reduce the chance that disagreements will metastasize into full-blown stalemates. Where possible, owners should seek outside advice from accountants, industry advisors, or legal counsel early in the life of a dispute, when cooler heads can still prevail. Being willing to consider a change in roles, a partial exit, or even a complete buyout of one owner can sometimes preserve the core value of the enterprise and the relationships that matter most.
For Michigan companies already facing deadlock, the most important step is to avoid paralysis. Ignoring the problem rarely makes it go away; more often, it erodes the business piece by piece. Owners should begin by reviewing their governing documents carefully, ideally with legal counsel, to understand what tools they already have. They should take stock of the practical realities: each person’s financial position, their appetite for continuing in the business, and their willingness to negotiate. From there, they can explore structured discussions, mediation, or other private processes, keeping judicial remedies in reserve. The goal is not to “win” at all costs but to find a path that protects and, where possible, enhances the value of the enterprise.
In the end, deadlock is a governance problem, not a moral failure. Intelligent, hard-working people can and do disagree about the direction of their companies. Michigan law recognizes this reality and provides a range of tools—contractual, procedural, and judicial—for dealing with it. The key for owners is to recognize the risk early, build robust deadlock-management provisions into their agreements, and seek qualified professional advice when conflicts arise. By doing so, they can transform what might otherwise be a fatal stalemate into a manageable transition or even an opportunity for renewal.
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Sources:
- Michigan Business Corporation Act, MCL 450.1101 et seq. https://www.legislature.mi.gov/Laws/MCL?objectName=MCL-450-1101
- Michigan Limited Liability Company Act, MCL 450.4101 et seq. www.legislature.mi.gov/documents/mcl/pdf/mcl-Act-23-of-1993.pdf
- Michigan Compiled Laws provisions on judicial dissolution and shareholder remedies in closely held corporations. https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-450-1489
- State Bar of Michigan, Business Law Section, guidance on closely held business governance and shareholder agreements. https://www.michbar.org/journal/Details/Shareholder-oppression-and-business-divorces?ArticleID=4495
- Secondary legal commentary and treatises discussing deadlock and oppression remedies in Michigan closely held corporations and LLCs. https://www.jdsupra.com/legalnews/shareholder-oppression-claims-in-5771719/
This publication is for general informational purposes and does not constitute legal advice. Reading it does not create an attorney-client relationship. You should consult counsel for advice on your specific circumstances.