When 50/50 becomes a dead end
In a GmbH with two shareholders each holding 50%, every strategic decision requires consensus. If positions diverge on investments, dividends, hiring, or exit, the shareholders' meeting can remain paralysed: this is the so-called deadlock. Unlike a joint-stock company (AG) with fragmented shareholding, in a GmbH there are few shares, they are registered, and they are often tied to the people who run the business.
The Code of Obligations (CO) does not provide an automatic mechanism for resolving deadlock. Except for legal grounds (Art. 833 CO for partnerships; for a GmbH, statutory grounds, liability actions, or, in extreme cases, an application for judicial dissolution under Art. 821 para. 3 CO — with possible organisational measures under Art. 819 CO and Art. 731b CO), the solution depends on what is provided in the articles of association and the shareholders' agreement. A well-drafted shot-gun clause can avoid years of litigation, but it must be carefully calibrated on valuation and liquidity.
This guide explains how exit clauses work when shareholding is evenly split, which valuation methods to adopt, and which accounting entries to prepare before a share buyback.
Deadlock resolution mechanisms
Before triggering a shot-gun clause, it is worth knowing the alternatives and the limits of each — especially in a typical 50/50 structure among Swiss SMEs:
| Mechanism | How it works | Pros | Cons / risks |
|---|---|---|---|
| Mediation or arbitration | Neutral third party facilitates agreement or issues binding award | Preserves relationship, flexible | Slow, legal costs, no guarantee of outcome |
| Approval clause / call option | One shareholder can buy the other's shares at a fixed price or under a formula | Predictable if the formula is clear | The "weaker" shareholder may be squeezed out on unfavourable terms |
| Shot-gun clause | One shareholder offers their shares at a price; the other must buy or sell at the same price | Forces a quick decision, self-selected "market" price | Requires liquidity; risk of aggressive strategic offers |
| Dissolution and liquidation | Cease operations, realise assets, distribute to shareholders | Definitive end to the conflict | Destruction of value, tax costs, loss of jobs |
| Sale to third parties (drag / tag along) | One shareholder finds a buyer; the others must follow or may participate | Complete exit, external market price | Difficult with two 50% shareholders; statutory approval required (Art. 786 CO) |
In GmbHs with two founders at 50%, the shot-gun clause is among the most widely used because it imposes a deadline and a single price. However, it should be included at incorporation or in a shareholders' agreement: amending it under stress is almost impossible without unanimous consent.
The shot-gun clause: how it works in practice
The mechanism, also known as a "shooting-gallery clause" or Russian roulette, works as follows: the offering shareholder ("offeror") notifies the other in writing ("offeree") of a unit price for their share (e.g. CHF 250,000 for 50%). The offeree has a fixed period — typically 30–60 days — to choose: buy the offeror's share at the same price, or sell their own share at the same price.
The economic logic is that the offeror will not propose a price they would not be willing to pay or accept. If the price is too low, the offeree buys "at a discount". If it is too high, the offeree sells "at a premium". In theory, the price converges towards a fair value. In practice, asymmetries in liquidity, information, and bargaining power distort the outcome.
Statutory elements to define
- Who may trigger the clause (only in certified deadlock or freely)
- Response period and method of notice (registered mail, notarial deposit)
- Scope of the offer: shares, shareholder loans, personal guarantees
- Financing: lump-sum payment, instalments, escrow, bank guarantee
- Lottery in case of simultaneous cross-offers
- Standstill periods during the procedure
Protections for the "weaker" shareholder
- Floor price: minimum based on net equity or an agreed multiple
- Cap or valuation range to avoid manifestly distorted offers
- Right to involve an independent expert before acceptance
- Assisted financing: the company may grant a loan to the buying shareholder within the limits of Art. 826 CO and Art. 814 CO (only from freely distributable profits and reserves; market terms and mandatory resolution)
- Temporary exclusion after extraordinary events (losses, recent investments)
Transfer of shares requires written form (Art. 785 CO) and, unless the articles provide otherwise, approval by the shareholders' meeting (Art. 786 CO). A well-drafted shot-gun clause should provide for an obligation to approve the transfer and register the new shareholder in the Commercial Register, avoiding a second block precisely at the moment of exit.
Share valuation: methods and accounting pitfalls
The price proposed in a shot-gun may be based on a statutory formula or be freely set. In both cases, book value rarely coincides with the economic value of the participation:
| Method | Calculation basis | When to use it | Accounting note |
|---|---|---|---|
| Adjusted net equity | Assets − liabilities ± adjustments (property at fair value, hidden goodwill) | GmbH with tangible equity, little expected growth | CO/FER balance sheet follows historical cost; appraisal or off-balance adjustment required |
| EBITDA multiple | Normalised EBITDA × sector multiple | Operating SMEs with recurring earnings | Normalise shareholder salaries, intra-group rent, non-recurring expenses |
| Discounted Cash Flow (DCF) | Future cash flows discounted at WACC | Companies with reliable projections, strong growth | Sensitive to assumptions; documentation needed for auditor and tax authorities |
| Nominal value / capital | CHF 100 per share × number of shares | Only as legal minimum, not as fair value | Drastically undervalues mature companies; risk of cantonal gift tax |
| Independent appraisal | Expert report (audit firm, M&A adviser) | Deadlock already occurred, clause providing it as fallback | Cost CHF 5,000–15,000; useful as evidence in case of tax dispute |
Simplified numerical example
GmbH "AlpTech GmbH", two shareholders at 50%, capital CHF 20,000. Balance sheet as at 31.12: book net equity CHF 180,000; property on balance sheet at CHF 400,000 with estimated fair value CHF 650,000; shareholder loan to Shareholder A of CHF 50,000.
Adjusted net equity: CHF 180,000 + CHF 250,000 (property gain) − CHF 50,000 (shareholder loan, if the debt reduces value for the buyer) = approx. CHF 380,000 → 50% share = CHF 190,000.
EBITDA multiple: normalised EBITDA CHF 120,000 × 4 = CHF 480,000 enterprise value; less bank debt CHF 80,000 = CHF 400,000 equity → 50% share = CHF 200,000. The difference between the two methods shows why the statutory formula must be explicit before conflict arises.
Impact on liquidity and the balance sheet
Buying shares is not an "internal" balance sheet transaction: it generates significant cash flows and can alter the GmbH's equity structure. Here is what to verify with your accountant before triggering the clause:
Liquidity and financing
- Buyer's payment: the remaining shareholder must have their own liquidity or bank financing (banks assess business continuity post-deadlock)
- Shareholder loan: if the company finances the purchase (Art. 826 CO), verify that profits and reserves allow it; otherwise risk of repayment and manager liability
- Seller's tax position: under private-asset treatment, capital gains on the transfer are generally exempt from income tax (Art. 16 para. 3 DBG); cantonal gift tax remains relevant if the price is below market value, taxation as income from commercial activity (Art. 181 DBG), and cantonal property gains tax if the company holds real estate
- Securities transfer tax: on share transfers, 1.5‰ of the consideration applies only if a securities dealer (e.g. bank) is a party or intermediary; in direct private transfers between shareholders it is generally not due
- Treasury plan: simulate payment and 12-month commitments to avoid insolvency or over-indebtedness (Art. 725 CO)
Typical accounting entries
- Transfer between shareholders: no income/expense item in the company; possible repayment of linked shareholder loan on exit
- Company buyback of shares (treasury): reduction of equity or reserves; possible only through legal procedure (shareholders' meeting, publication, creditor protection if capital reduced)
- Goodwill paid: if the price exceeds net equity, the difference is not easily recognised on a CO/FER balance sheet; it remains off balance sheet or in third-party equity
- Seller's capital gain: difference between transfer price and tax cost of the share (nominal value + any subsequent contributions); relevant for the shareholder's income tax if the participation is business assets
- Property or assets sold to finance exit: taxable gains and VAT if applicable
| Scenario | Company cash flow | Equity effect | Tax note |
|---|---|---|---|
| Shareholder A buys Shareholder B's share (direct payment) | No movement in the company | Unchanged; change of owner at Commercial Register | Capital gain generally exempt if private assets; securities transfer tax only if a securities dealer is involved |
| Company buys shares from Shareholder B (internal financing) | Cash outflow = purchase price | Reduction in cash and equity / reserves | Constraints under Art. 826 CO and Art. 797 CO; possible treatment as implicit dividend |
| Bank loan to finance purchase | Cash inflow, then outflow to seller | Increase in financial debt, higher leverage | Interest deductible if linked to business activity |
| Sale of business division to pay for exit | Inflow from asset disposal | Reduction in assets; possible capital gain | Capital gains tax + VAT on goods if applicable |
Before any significant payment, verify the going-concern test (Art. 725 CO) and distributable capacity. A poorly planned exit can leave the GmbH technically solvent but without operating liquidity — a situation Accountex helps monitor with cash forecasts and alerts on critical due dates.
Preventing deadlock: governance and shareholders' agreement
The shot-gun clause is a last resort, not a substitute for governance. In a 50/50 GmbH, it is advisable to supplement the articles and shareholders' agreement with:
- Casting vote: one shareholder has a decisive vote on specific matters (limited to prevent abuse)
- Deadlock escalation: mandatory mediation for 60 days before triggering the shot-gun
- Matters reserved: list of decisions requiring a qualified majority (66.7%) or unanimous consent
- Succession plan: who manages operations if the shareholders no longer communicate
- Non-compete and confidentiality clause post-exit, with defined duration and compensation
- Periodic value review: annual update of the valuation formula to avoid surprises when the clause is triggered
The manager registered in the Commercial Register remains responsible for proper accounting even during the conflict. Keep company accounts separate from personal accounts and document every resolution: in case of judicial or tax dispute, traceability of pre-deadlock decisions makes the difference.
Operational checklist for entrepreneurs and trustees
- Check whether the articles or shareholders' agreement already contain a shot-gun clause or valuation formula
- Calculate indicative share value using at least two methods (adjusted equity + multiple or DCF)
- Simulate the impact on company and personal liquidity of the buying shareholder
- Review bank loan constraints (change-of-control clause) and insurance policies
- Prepare the transfer agreement in written form (Art. 785 CO) and verify any tax or stamp duties
- Prepare an independent appraisal if consideration exceeds CHF 500,000 or shareholders dispute the value
- Record in the accounts any shareholder loans, repayments, and adjustments linked to the exit
- Update the Commercial Register and notify social security/compensation funds and, if applicable, the cantonal tax authority in case of manager change
- Archive resolutions, appraisal, and contract for at least ten years (document retention obligation under Art. 958 CO)
Conclusion: plan the exit before conflict
Deadlock in a 50/50 GmbH is predictable and, with the right clauses, manageable without destroying value. The shot-gun clause offers a fast mechanism, but it rewards those with liquidity and penalises those who have underestimated the proposed price. Fair valuation requires clear formulas, adjustments beyond the CO/FER balance sheet and, if necessary, an independent expert.
From an accounting perspective, exit is not neutral: it affects cash, equity, shareholder loans, and the seller's personal tax position. Integrating financial simulation into day-to-day management — with tools such as Accountex for forecasting, payment schedules, and equity reporting — makes it possible to handle a shot-gun procedure with verified figures, not improvised estimates in the heat of conflict.