When the two directors of a Singapore company cannot agree, the board cannot pass resolutions, and the company can stall. The first place to look is the constitution. Under the Model Constitution, board questions are decided by majority and the chairman of the meeting has a second or casting vote on an equality of votes, but on a two-person board the directors must first agree who the chairman is. If the board stays stuck, the usual ways out are a shareholders’ decision on the board’s composition, a deadlock clause in the shareholders’ agreement and, as a last resort, a court application.
This guide is for directors and shareholders of private companies with two directors, or an evenly split board, who have reached an impasse over a business decision.
Why does a two-director board deadlock so easily?
Many Singapore companies have exactly two directors: two co-founders, a founder and an investor’s nominee, or a foreign owner and a local resident director. Section 145 of the Companies Act 1967 requires at least one director who is ordinarily resident in Singapore, so a second director is often appointed simply to meet that rule. That arrangement works while the two agree. When they do not, three features of a typical constitution combine to freeze the board:
- Majority voting. Regulation 84(1) of the Model Constitution for a private company limited by shares says questions at a directors’ meeting are decided by a majority of votes. With two directors, one vote each, a disagreement is a tie.
- Quorum of two. Regulation 86 says the quorum for directors’ business may be fixed by the directors and, unless fixed, is 2. If one director stays away, there is no quorum and no valid meeting.
- Unanimous written resolutions. Regulation 93 makes a written directors’ resolution valid only if signed by all directors entitled to notice of a meeting. A director who refuses to sign blocks the circular resolution route.
The Model Constitution is set out in the First Schedule to the Companies (Model Constitutions) Regulations 2015. Many companies have adopted it with changes or use a tailored constitution, so always read your own company’s version.
Does the chairman’s casting vote break the deadlock?
Sometimes. Regulation 84(2) of the Model Constitution says that, in case of an equality of votes, the chairman of the meeting has a second or casting vote. On a two-director board, whoever chairs effectively decides every contested question.
That is exactly why the chairman question becomes the first battleground:
- Under regulation 88(1), the directors may elect a chairman of their meetings and decide how long the chairman holds office. Electing a chairman is itself a board decision, so on a split board neither director can elect himself or herself without the other’s vote, unless one already holds the post.
- Under regulation 88(2), if no chairman has been elected, or the chairman is not present within 10 minutes of the meeting’s start time, the directors present choose one of their number to chair. On a two-person board that choice can deadlock too.
- A director must not vote on a transaction in which he or she is interested, and that vote is not counted (regulation 85). A casting vote cannot be used to push through a deal that benefits the chairman personally.
Some tailored constitutions remove the casting vote, give it to a named shareholder’s nominee, or switch it off when only two directors are present. Check your constitution before relying on it. Even a valid casting vote must be used in good faith in the company’s interests. A chairman who uses it to oust the other director or take control of the company’s money invites a challenge.
Casting vote at board level and at shareholder level are different
The Model Constitution separately gives the chairman of a general meeting a casting vote on an equality of shareholder votes (regulation 57). That chairman may be a different person, so do not assume one power follows from the other.
Quorum failure: what if one director simply stops turning up?
A common tactic in a falling-out is for one director to boycott meetings so that the quorum of two is never met. The board then cannot act at all, even on routine matters such as approving accounts or changing bank signatories.
Regulation 87 of the Model Constitution allows the directors to act despite vacancies. However, if the number of directors falls below the quorum, the continuing director may act only to increase the number of directors to the quorum or to summon a general meeting. That provision is aimed at vacancies, such as a director resigning, not a director who remains in office but refuses to attend. A boycott usually has to be solved at shareholder level.
If the deadlocked board will not convene a general meeting, shareholders holding at least 10% of the paid-up voting shares can requisition one under section 176 of the Companies Act, and may convene it themselves if the directors do not act within 21 days. Our guide on what the board must do when shareholders requisition an EGM explains the steps.
How can shareholders break a board deadlock?
The board manages the company, but the shareholders decide who sits on it. Where the shareholdings are not evenly split, this is often the quickest exit.
| Route | Source (Model Constitution or Companies Act) | Practical point |
|---|---|---|
| Remove a director and appoint a replacement by ordinary resolution | Model Constitution reg 73 | Requires a majority of shareholder votes, so it works only if the shareholders are not themselves split 50:50 |
| Change the number of directors | Model Constitution reg 71 (ordinary resolution at a general meeting) | Increasing the maximum does not by itself fill the new seat; check who may appoint into it |
| Elect directors when they retire by rotation at the AGM | Model Constitution regs 67 to 70 | Many private companies dispense with AGMs, so rotation may never take place in practice |
| Shareholders call or requisition a general meeting | Companies Act ss 176 and 177 (10% thresholds) | Gets the issue before shareholders when the deadlocked board will not convene a meeting |
| Ask the court to order a meeting | Companies Act s 182 | Available where it is impracticable to call or conduct a meeting in the normal way |
Whether shareholders can appoint an additional director, as opposed to a replacement, depends on the wording of your constitution. Under the Model Constitution, regulation 72 gives the directors, not the shareholders, the power to appoint additional directors, and that power is useless if the board is deadlocked. Many tailored constitutions expressly let shareholders appoint directors by ordinary resolution. Our comparison of the Model Constitution and a tailored constitution explains why this clause matters.
Under section 182 of the Companies Act, the court may, on the application of a director or a member entitled to vote, order a meeting to be called, held and conducted as it thinks fit, and may direct that one member present constitutes a meeting. This can help a majority shareholder whose opponent is blocking quorum at general meetings. It is not designed to resolve a genuine 50:50 split between equal shareholders.
What deadlock clauses can a shareholders’ agreement contain?
When the directors are also equal shareholders, the constitution rarely provides an exit. That is the job of a shareholders’ agreement. Common mechanisms include:
- Escalation. The disputed matter goes to the shareholders’ senior representatives, then to the principals, within set periods.
- Mediation or expert determination. A neutral person helps settle the issue, or an expert decides technical or valuation questions.
- Independent chairman or third director. The parties agree in advance on a neutral director, or a mechanism to appoint one, who holds the casting vote on defined matters.
- Russian roulette (shotgun) clause. One shareholder names a price per share. The other must either sell its shares at that price or buy the offeror’s shares at the same price. Because the offeror does not know which way it will go, it has an incentive to name a fair price.
- Texas shoot-out. Each shareholder submits a sealed bid to buy the other out, and the higher bidder must buy. Variants include the “Mexican shoot-out”, where the lower bidder must sell.
- Put or call options, or a sale of the company. A defined deadlock triggers an option to buy or sell at a formula price, or a joint sale to a third party.
These clauses only work if “deadlock” is clearly defined (which decisions, how many meetings, what notice), the timelines are workable and the valuation basis is clear. Buy-sell clauses also favour the shareholder with ready access to funds. Our guide to key shareholders’ agreement clauses covers how deadlock provisions fit with transfer restrictions and reserved matters.
Keeping the company compliant while the board is stuck
Deadlock does not suspend the company’s legal obligations, and directors in default can be personally liable for compliance offences. Key points:
- AGM and accounts. A non-listed company must hold its AGM within 6 months after its financial year end under section 175 of the Companies Act, unless an exemption under section 175A applies, such as sending the financial statements to members within the required time.
- Annual return. A non-listed company must lodge its annual return within 7 months after its financial year end under section 197. Both the company and every officer in default can be fined.
- Tax filings. Estimated chargeable income and corporate income tax returns remain due.
- Resident director. Under section 145(5), a director cannot resign if it would leave the company without a locally resident director. A resident director cannot simply walk away from a deadlock.
- Bank mandates. If the mandate needs both signatures, payroll and supplier payments can stop. Agree an interim protocol for routine payments in writing.
Our company compliance calendar lists the dates to protect. A practical step is for the directors to sign a short “standstill” letter: they agree to keep approving routine compliance and payment items while the disputed issue is resolved separately.
When is court the only answer?
If none of the above works, there are two main court remedies:
- Oppression under section 216 of the Companies Act. A member can apply if the company’s affairs are conducted, or directors’ powers exercised, oppressively or in disregard of members’ interests. The court has wide powers, including ordering one side to buy out the other. A deadlock alone is not usually enough; there generally needs to be unfair conduct, such as exclusion from management in breach of an understanding.
- Winding up on the just and equitable ground under section 125(1)(i) of the Insolvency, Restructuring and Dissolution Act 2018. Courts treat this as a last resort where the relationship has broken down and the company cannot function. We cover this in our article on shareholder deadlock and just and equitable winding up.
Both routes are expensive, slow and uncertain, and often end in a negotiated buy-out.
Example: a 60:40 company with a two-person board
Example (hypothetical): A Singapore software company has two shareholders, a founder with 60% and an investor with 40%. Each is a director, and no chairman has ever been elected. The founder wants to hire three engineers, and the investor refuses and stops attending board meetings, so there is no quorum.
The company’s constitution follows the Model Constitution. The founder cannot elect himself chairman without the investor’s vote, and the investor will not sign a written resolution. The founder, holding more than 10% of the shares, requisitions an extraordinary general meeting under section 176 to consider the board’s composition. The founder’s lawyer advises that, under this constitution, the shareholders can remove a director by ordinary resolution and appoint a replacement, but cannot simply add a third director. The founder first offers the investor a written agreement on an independent third director with a casting vote on hiring and budget matters. Removal remains the fallback, but the lawyer warns it could invite a section 216 claim if the parties had an understanding that the investor would keep a board seat.
Frequently asked questions
Can the chairman use the casting vote to appoint a third director?
If the constitution gives the board power to appoint additional directors and the chairman validly holds a casting vote, potentially yes. The power must still be used for a proper purpose, not to shift control unfairly, and any limit on the number of directors must be respected.
Can the board change the quorum to one?
Under regulation 86 of the Model Constitution the directors may fix the quorum, but that is itself a board decision. A deadlocked board cannot pass it without agreement.
We are 50:50 shareholders and the only two directors. What can we do?
Look first at your shareholders’ agreement for a deadlock clause. If there is none, a negotiated buy-out, mediation or a sale to a third party are usually the realistic options, with section 216 or winding up as last resorts.
Does a director who boycotts meetings breach his or her duties?
It can, depending on the circumstances. Directors must act in the company’s interests, and deliberately paralysing the company, especially on compliance matters, may be hard to justify. Get advice before alleging a breach.
Should we add deadlock provisions now, while we still agree?
Yes, that is the best time. Changing the constitution needs a special resolution, and a shareholders’ agreement needs everyone’s signature, both of which are far easier before a dispute starts.
Need help with a board deadlock?
If your company, or you as a director or shareholder, is dealing with a board deadlock, a disputed casting vote or a director who will not attend meetings, contact the Raffles Corporate Services team at [email protected] or on WhatsApp at +65 8501 7133 or +65 9018 0072. We will help you understand the documents and deadlines. Where your matter needs a lawyer, we will refer you to a firm on our panel of Singapore law firms that regularly handles shareholder and director disputes. Raffles Corporate Services is a corporate services provider, not a law firm, and this article is general information, not legal advice.
Willie Tan, Raffles Corporate Services