The Austrian Sit Out: The Austrian Answer to Texas Shoot Out & Co.

Joint Ventures – Cooperation with Built‑In Conflict Potential

A joint venture is created when two or more independent companies establish a special‑purpose vehicle to pursue a specific project together. The classic fifty‑fifty structure gives each partner half the shares and a veto right on all material decisions. While this prevents unilateral action, it also raises the risk that entrenched positions will lead to a standstill.

What Constitutes a Deadlock?

A deadlock occurs when the partners cannot agree on a business‑critical decision, jeopardising operations or even the venture’s future. Typical triggers include major investments, budget approvals, senior personnel appointments or additional financing. Without unanimity, nothing can be implemented – the company grinds to a halt.

International Deadlock Clauses at a Glance

Texas Shoot‑Out: Competitive Bidding under Time Pressure

Each partner submits a sealed price at which he is prepared either to buy the other’s entire stake or to sell his own. After opening the envelopes, the highest bidder must deposit the full purchase price within thirty calendar days with an escrow agent. If he meets the deadline, the lower bidder must transfer his shares at the offered price. Should the high bidder fail to pay, the roles reverse and the previously out‑bid partner may buy at his own offer. The mechanism rewards liquidity and realistic pricing while deterring lowball tactics.

Russian Roulette: Pure Sudden‑Death Logic

The initiating partner sets a fixed price per share in an irrevocable notice. The recipient has ten to fifteen business days to decide whether to sell his shares at that price or buy all of the offeror’s shares on identical terms. Failure to respond equals acceptance as a seller. If the buyer does not pay within thirty days, the mechanism reverses and the other party may acquire at the minimum price. The sharp logic forces both sides to realistic valuations.

Mexican Stand‑Off: Parallel Bidding Race

Once triggered, each partner appoints an independent adviser, submits a binding offer within days and provides purchase‑price security. Rapid bidding rounds ensue until one side drops out or a pre‑defined ceiling is reached. The highest bidder acquires all shares; if he misses the payment deadline, the under‑bidder steps in at the final price. Variants such as the Dutch Auction (descending price) or the Chinese Auction (ascending bids) pursue the same goal: ending the deadlock by one partner’s exit.

The Austrian Sit‑Out – Maintaining the Status Quo

Procedure

Instead of forcing a sale, the Austrian Sit‑Out aims to preserve the existing ownership structure. If two duly convened joint‑venture committee meetings fail to resolve the issue, the matter is escalated to the shareholders’ top management. Should they also fail to agree within four weeks, the proposal is deemed rejected and may not be implemented. The venture continues under the status quo.

Advantages

• Ownership remains intact – no forced sale or dilution.
• No liquidity burden – avoids valuation and financing risks inherent in shoot‑out clauses.
• Time to rethink – projects mature, markets shift, people change roles; a later consensus remains possible.

Challenges

• Growth may stall – repeated rejections can slow expansion.
• Conflict may solidify – without mediation or information duties, a stalemate can persist indefinitely.

Conclusion

Classic deadlock clauses such as the Texas Shoot‑Out, Russian Roulette and Mexican Stand‑Off often resolve disputes by forcing one partner to exit. The Austrian Sit‑Out offers a pragmatic alternative: it accepts a temporary rejection, keeps both partners on board and buys time to reconsider positions. For ventures where sustained cooperation or regulatory constraints make an exit undesirable, this mechanism can be the decisive differentiator.