Dealing with decision – making deadlocks in private companies

Effective decision – making is an important part of running any business or company.

In essence companies are governed by the democratic principle on both shareholder and board level. This means, the majority rules both on shareholder and on board level.

What is important to note though, particularly on shareholder level is that besides the underlying asset value particularly in private companies, the ability to exercise effective control over the business and its assets by being a majority shareholder carries considerable economic value. Conversely minority shareholding, although minority shareholders enjoy increased protection under the new Companies Act 71 of 2008 as amended, carries a lesser economic value and is often difficult to market and sell to third party buyers.

For this reason, majority shareholders are often reluctant to relinquish the effective control they hold.

The role of a shareholder and director are distinctly different from one another as will be investigated briefly through this article. Sound governance principles are in writer’s view key in avoiding decision – making deadlocks on both levels and further, to maintain healthy relationships between shareholders and board members.

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