The problem with a company in which two people are both directors and both 50% shareholders, is that each of you having equal power can mean that no one has power and that’s a big problem.
When most companies are set up, the Model Articles of Association (Model Articles) are adopted as its constitution.
According to the Model Articles (Part 2, section 3) “the directors are responsible for the management of the company’s business, for which purpose they may exercise all the powers of the company”.
However, decisions can only be taken if there is a minimum of two directors present and decisions binding the company can only be passed if there is a majority or a unanimous vote in support. As it is impossible to have a majority vote if there are only two voters, the Model Articles can effectively be read as saying that both directors must agree, or else there is no agreement.
Although the Model Articles allow for one of the directors in a directors’ meeting to be appointed as the Chairman and to be granted a casting vote on any decision. It is unlikely that either of you would ever be tempted to simply concede control of their company.
The directors of a company can be overruled by the shareholders. Part 2 section 4 of the Model Articles states, “The shareholders may, by special resolution, direct the directors to take, or refrain from taking, specified action.” A special resolution though, according to s283 of the Companies Act 2006 requires 75% of the shareholders to be passed. So, in a 50/50 company the directors can never be overruled.
Also, neither of you has the power to remove the other as a director. To remove a director,, according to s168 of the Companies Act 2006 requires an ordinary resolution, which needs 51% or more of shareholders to agree.
However, although not easy, there are ways to resolve the dead lock.