Majorities, vetoes and deadlock situations: how to allocate power among the shareholders without paralysing the company

The allocation of power in a company limited by shares is not exhausted by the percentage of capital held by each shareholder. The design of enhanced majorities, reserved matters and veto rights, the composition of the management body and the mechanisms for resolving deadlock decisively determine who really holds sway and how decisions are taken. The practical challenge lies in giving reasonable protection to majority and minority shareholders without building an architecture that makes it impossible to adopt resolutions when disagreements arise. Company law offers a flexible framework, but it also imposes limits in order to prevent abuse by the majority and by the minority and to safeguard the functioning of the legal person.

19/02/2026

Corporate and commercial Mergers and acquisitions

1.Statutory majorities, enhanced majorities and reserved matters

In companies limited by shares (“sociedades de capital”), the basic rule is that the shareholders, meeting in general meeting, decide by the majority laid down by statute or in the articles of association on the matters falling within their competence, and that all the shareholders, including those who dissent and those who are absent, are bound by resolutions validly adopted. The “Ley de Sociedades de Capital” —the Spanish Companies Act, the LSC— lays down minimum majorities and, in certain cases, enhanced majorities. In the private limited company (“sociedad limitada”), unless the articles of association provide otherwise, resolutions are adopted by a majority of the votes validly cast representing at least one third of the votes attaching to the quotas (“participaciones”) into which the capital is divided, and for certain matters the favourable vote of more than half or of two thirds of the votes is required, as is the case with amendments to the articles of association, conversion, merger, division, the global assignment of assets and liabilities or the exclusion of shareholders. In the public limited company (“sociedad anónima”), certain structural decisions require an enhanced quorum for the meeting to be validly constituted and, where appropriate, qualified majorities.

Above this statutory minimum, the articles of association may lay down enhanced majorities for all or for certain specified matters, short of unanimity, and may even require, in addition to the proportion of votes, the favourable vote of a given number of shareholders. This possibility makes it possible to configure reserved matters calling for a broader consensus than a simple majority, such as the admission of new shareholders, the approval of certain financing transactions, the sale of essential assets or a change in dividend policy. The design of these enhanced majorities is a key instrument for balancing power between majority and minority shareholders, but excessive use of it may give rise to deadlock if the minority acquires a de facto power of veto over decisions necessary for the running of the company.

2.Veto rights and joint control: protection or source of deadlock

Veto rights are a common tool for protecting significant minority shareholders or industrial shareholders against decisions liable to have a serious impact on their investment or on their position. They may be arranged in the articles of association, by requiring the favourable vote of particular shareholders for certain matters, or contractually, through shareholders' agreements binding the parties to vote in a given way. In the field of merger control, European Union law has developed the notion of joint control precisely on the basis of veto rights over strategic decisions. The European Commission has stated that control may be joint even where there is no equality of votes or of representation in the decision-making bodies, where minority shareholders have additional rights enabling them to veto decisions which are essential for the competitive strategy of the joint venture. Those veto rights must relate to strategic decisions on commercial policy, such as the budget, the business plan, major investments or the appointment of senior management, and must be broader than the veto rights typically granted to protect the financial interests of minority shareholders, which are usually confined to amendments to the articles of association, increases or reductions of capital or winding-up.

Transposed to domestic company law, this means that a minority shareholder may, through well-designed veto rights, share in effective control of the company even without holding a majority of the capital. Extending vetoes indiscriminately to an excessive number of matters may, however, turn the company into a minefield in which any disagreement blocks decision-making. The key lies in reserving vetoes for genuinely strategic decisions and in providing deadlock-breaking mechanisms for cases where disagreement persists.

3.Composition of the management body and allocation of executive power

Power within the company is not exhausted by the general meeting. The management body, whether a sole director, directors acting severally or jointly or a board of directors, concentrates the management and representation of the company. The composition of the board is a central element in the allocation of power. The LSC requires the board to be made up of a minimum of three members and, in the private limited company, caps the maximum number at twelve. The articles of association may fix the specific number or a range, with the general meeting determining the number within that margin.

In companies with several significant shareholders, it is common for the articles of association or the shareholders' agreement to provide for the proportional appointment of directors, so that each shareholder or group of shareholders is entitled to appoint a given number of board members. This technique makes it possible to carry the balance of forces existing within the share capital across to the executive body and, where appropriate, to give a minority shareholder a specific weight in management. The chairmanship of the board, the existence of managing directors and the configuration of internal committees are likewise variables that influence the real allocation of power.

Directors may be removed freely at any time by resolution of the general meeting, even where the item does not appear on the agenda, and in the private limited company the articles of association may require, for the removal resolution, an enhanced majority not exceeding two thirds of the votes. This rule allows majority shareholders to retain control of the management body, but it also opens the door to agreeing enhanced majorities for removal, so protecting directors appointed by minority shareholders. Here too the balance between stability and the capacity to react is a delicate one: excessively high majorities for removal may entrench unsuitable directors and aggravate deadlock.

4.Company deadlock, abuse by the majority and abuse by the minority

Structures of enhanced majorities and vetoes may lead to deadlock where disagreement between the shareholders prevents the adoption of resolutions needed for the running of the company. Deadlock may be vertical, where the general meeting fails to approve the accounts, to appoint directors or to take strategic decisions, or horizontal, where the board splits into irreconcilable factions. Company law offers no single solution, but it does offer tools for reacting to abuse.

Article 204 of the LSC allows company resolutions to be challenged where they are contrary to the law, to the articles of association or to the general meeting regulations, or where they injure the company's interest for the benefit of one or more shareholders or of third parties. The company's interest is also injured where the resolution, although it causes no harm to the company's assets, is imposed abusively by the majority, without answering to a reasonable need of the company and in the majority's own interest and to the unjustified detriment of the other shareholders. This doctrine of abuse by the majority has been applied by the “Tribunal Supremo”, Spain's Supreme Court, in cases of a systematic policy of not distributing dividends, of instrumental use of the “acción social de responsabilidad” —the company's claim for directors' liability— and of the adoption of resolutions which, under the appearance of defending the company's interest, seek to displace minority shareholders from management or to circumvent undertakings in shareholders' agreements.

Abuse by the minority, although not expressly defined by statute, has been addressed through good faith and abuse of rights. A minority shareholder who uses veto rights or blocking power to prevent, without reasonable cause, decisions necessary for the survival of the company, such as capital increases essential to avoid dissolution, may be engaging in the anti-social exercise of a right. The response may take the form of liability claims, of judicial supplementation of the company's will in situations of extreme deadlock or, as a last resort, of dissolution by court order on the ground that the company's bodies are paralysed in such a way that the company cannot function.

5.Deadlock-breaking mechanisms and the practical design of the allocation of power

From a practical standpoint, the design of the allocation of power must combine protection and workability. Enhanced majorities and vetoes should be reserved for genuinely strategic matters, avoiding their extension to ordinary management decisions. It is advisable to distinguish between day-to-day decisions, which should be adopted by simple majorities on the board, and structural decisions, which may require qualified majorities or the favourable vote of directors appointed by particular shareholders. At the general meeting, reserved matters should be defined precisely, avoiding generic clauses that turn every significant decision into a matter subject to veto.

Deadlock-breaking mechanisms may include drag-along and tag-along clauses allowing the company to be sold as a whole once a given offer is reached, cross purchase-and-sale clauses (shotgun clauses) requiring one of the shareholders to buy or to sell in the event of persistent disagreement, call or put options in favour of one or other shareholder in cases of breach or of deadlock, or even provision for mediation or arbitration to resolve disagreements over the interpretation of the agreements or over the reasonableness of particular decisions. In situations of extreme deadlock, the possibility of seeking dissolution by court order on the ground that the company's bodies are paralysed operates as a remedy of last resort, but recourse to it entails the disappearance of the company and the liquidation of its assets, and it is therefore usually regarded as a terminal solution.

The design must also take the time dimension into account. What may be reasonable at an early stage of the company's life, when the founding shareholders wish to protect one another, may become a straitjacket at later stages, when new investors come in or the company grows. Providing for mechanisms to review the governance arrangements, to adapt majorities and to reconfigure the board can prevent rigid structures from becoming a source of deadlock.

6.Conclusion: protecting without paralysing

The allocation of power in a company is not reducible to the percentage of capital. Enhanced majorities, reserved matters, veto rights, the composition of the management body and deadlock-breaking mechanisms make up a complex architecture which determines who decides what and how. Company law offers a flexible framework for designing that architecture, but it also imposes limits through the prohibition of abuse by the majority and by the minority, the protection of the company's interest and the possibility of dissolving deadlocked companies.

The practical challenge lies in protecting majority and minority shareholders without paralysing the company. An excess of power concentrated in the majority may lead to oppression of the minority and to abusive resolutions; an excess of vetoes and enhanced majorities may turn the minority into a hostage of the company, blocking necessary decisions. The balance is struck through careful design of the decision-making rules, a clear delimitation of the reserved matters, a composition of the management body reflecting the balance of forces and provision for deadlock-breaking mechanisms enabling disagreements to be overcome without destroying the company. Only in this way can the allocation of power among the shareholders fulfil its function of securing stability, protection and, at the same time, the capacity to decide.

Alburquerque AbogadosJosé Manuel AlburquerqueBarcelona 19/02/2026

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