Many international partnerships begin smoothly because the parties share common objectives during the investment stage. However, as the company grows, investment strategies, financing needs, profit distribution policies, expansion plans, and expectations regarding the company’s future may evolve. Having different commercial priorities is not, in itself, a problem. The real risk arises when those differences prevent the company’s governing bodies from making decisions.

A deadlock is far more than a legal dispute. When critical decisions cannot be made, investment projects may be delayed, financing may become unavailable, customers may be lost, contracts may be terminated, and the company’s market value may decline significantly. In some cases, the parties become involved in litigation lasting for years, while in others the business effectively ceases to operate even without a court decision because its management is unable to function.

For this reason, in international partnerships, the risk of a deadlock should not be viewed as a problem to be resolved only after it arises. Instead, it should be treated as one of the fundamental legal risks that must be managed from the moment the partnership is established. A carefully designed governance structure, clear decision-making mechanisms, and well-defined exit provisions play a decisive role in ensuring the long-term stability and sustainability of the partnership.

The concept of a deadlock is not regulated as an independent legal institution under the Turkish Commercial Code. Nevertheless, deadlock disputes encountered in practice are resolved by considering the Turkish Commercial Code, the Turkish Code of Obligations, the company’s articles of association, the Shareholders’ Agreement, the applicable governing law, and the dispute resolution mechanisms agreed upon by the parties as an integrated legal framework.

In international partnerships, the legal framework is not limited to Turkish law alone. In many cases, the parties are free to choose the governing law and determine whether their disputes will be resolved before state courts or through arbitration. However, the place of incorporation of the company, mandatory legal provisions, public policy rules, and compulsory corporate law requirements may limit the parties’ contractual freedom to a certain extent.

For this reason, when drafting deadlock provisions, it is essential to consider not only the commercial expectations of the parties but also the mandatory legal rules of the country where the company operates, the principles of private international law, and the enforceability of the agreed dispute resolution mechanisms.

A deadlock occurs when important corporate decisions cannot be made because the shareholders are unable to reach an agreement, causing the company’s decision-making process to become effectively paralyzed.

Although deadlocks most commonly arise in companies with equal ownership structures, they may also occur where shareholders have extensive veto rights or where certain corporate decisions require unanimous approval.

The defining characteristic of a deadlock is that the company’s governing bodies become incapable of making decisions, regardless of whether either party is legally right or wrong. Even if the company continues to exist from a legal standpoint, it may become unable to operate effectively because the board of directors cannot pass resolutions, capital increases cannot be approved, investment decisions cannot be authorized, or key executives cannot be appointed.

In international partnerships, the risk of a deadlock is even greater due to differences in legal systems, evolving commercial priorities, corporate governance practices, and the long-term strategic objectives of investors from different jurisdictions.

Although every international partnership has its own unique dynamics, a significant proportion of deadlock situations arise from similar underlying causes.

One of the most common reasons is that, while the partners may share the same objectives at the investment stage, their commercial priorities often evolve over time. One shareholder may pursue an aggressive growth strategy, whereas the other may prefer a more conservative, lower-risk approach. These differences can have a direct impact on corporate governance, particularly when significant investment decisions are involved.

Another major cause is the failure to clearly specify in the shareholders’ agreement which decisions require unanimous consent and which may be adopted by majority vote. Ambiguous contractual provisions frequently lead the parties to interpret the same agreement differently, creating uncertainty and increasing the likelihood of governance disputes.

Financing obligations also represent one of the most common sources of deadlock. If the company requires additional capital, the refusal or inability of one shareholder to contribute further funding may significantly disrupt the company’s operations and strategic development.

Strategic matters such as the appointment of board members and senior executives, dividend policy, expansion into new markets, acquisitions, or the sale of the company are among the issues that most frequently give rise to deadlocks in practice.

In international partnerships, cultural differences, differing approaches to corporate governance, and expectations shaped by different legal systems may further complicate the decision-making process. Accordingly, a deadlock should not be regarded solely as a legal issue; it is also a multidimensional corporate governance and risk management challenge that requires careful planning and proactive management.

A Partnership Structure That Does Not Support Effective Decision-Making
One of the primary causes of a deadlock is structuring the partnership solely on the basis of ownership percentages. In particular, in 50/50 ownership structures, requiring unanimous consent for every significant decision can bring corporate governance to a complete standstill whenever the shareholders disagree. For this reason, the partnership structure should be designed not only to ensure equal rights for the parties but also to maintain an efficient and sustainable decision-making process.

Excessively Broad Veto Rights
Granting veto rights is a common practice in international partnerships to protect investors’ interests. However, if the scope of those rights is excessively broad, even routine business operations may become subject to shareholder approval. A mechanism intended to protect investors can ultimately become one of the principal reasons why the company’s management becomes ineffective.

Failure to Clearly Define Critical Decisions
The agreement should clearly specify which matters are to be decided by the board of directors, which require shareholder approval, and which require unanimous consent. Ambiguous provisions may lead the parties to interpret the same agreement differently, causing the decision-making process to become deadlocked from the outset. Particular attention should be given to matters such as capital increases, new investments, the sale of the company, share transfers, and financing decisions.

Absence of Exit Mechanisms
No partnership should be established on the assumption that it will continue indefinitely. If one shareholder wishes to leave the business or the parties determine that continuing the partnership is no longer viable, the absence of predetermined exit mechanisms may allow a deadlock to persist for many years. Share purchase rights, put and call options, drag-along and tag-along provisions, together with other contractual exit mechanisms applicable under specified circumstances, play a crucial role in managing this risk.

Failure to Establish a Deadlock Resolution Process in Advance
Even the most comprehensive shareholders’ agreement cannot completely eliminate disagreements between the parties. Therefore, it is essential to define in advance the procedure that will apply if a deadlock occurs. Mediation, independent expert determination, decision-making mechanisms involving independent third parties, buyout mechanisms such as the Russian Roulette Clause and Shotgun Clause, as well as arbitration procedures, should all be expressly incorporated into the agreement to ensure that disputes can be resolved without disrupting the company’s operations.

There is no universal solution to resolving a deadlock in international partnerships. The most appropriate approach depends on the ownership structure, the size of the investment, the parties’ bargaining power, and the industry in which the company operates. For this reason, well-drafted shareholders’ agreements typically establish a multi-tiered dispute resolution framework rather than relying on a single mechanism.

As a first step, the parties may be required to engage in good-faith negotiations within a specified period. If no resolution is reached, the matter may be escalated to senior executives or representatives of the parent companies for further discussions.

If these efforts are unsuccessful, alternative dispute resolution methods, such as mediation or independent expert determination, may be used. In particular, where the dispute involves technical or financial issues, an independent expert’s determination may enable the parties to reach a practical solution without resorting to litigation or arbitration.

Some partnership agreements also include contractual mechanisms that allow one shareholder to acquire the other’s shares. The most widely recognized examples include the Shotgun Clause, Russian Roulette Clause, Texas Shoot-Out, and Buy-Sell Agreement. However, these mechanisms are not suitable for every ownership structure. Where there is a significant imbalance in the parties’ financial strength, such provisions may produce unfair outcomes and expose one party to substantial disadvantages.

If the dispute cannot be resolved through the contractual mechanisms agreed by the parties, the designated courts or arbitral institutions will generally have jurisdiction. In international partnerships, arbitration is frequently preferred because arbitral awards are often more readily enforceable across multiple jurisdictions and disputes can be decided by arbitrators with specialized expertise. Nevertheless, arbitration should not be regarded as the optimal solution in every case. The nature of the dispute and the commercial objectives of the parties should always be considered when selecting the most appropriate dispute resolution mechanism.

A significant number of serious disputes in international partnerships arise not because the parties lack trust, but because the partnership structure has not been properly planned from a legal perspective. Issues that appear insignificant at the outset of an investment can, over time, develop into problems capable of bringing the company’s operations to a standstill.

The most common mistakes include: