What if you have an offer to acquire your company but a minority of shareholders dont want to move forward? Can you still sell? The answer is probably "Yes" - if you've taken the right steps.
Typically the rights of minority shareholders are set out in the laws of the state where your company is domiciled. These laws are complex. Seek competent legal advice. Minority shareholder laws are designed to protect minority shareholders against self dealing by management and the controlling shareholders.
You will avoid problems by communicating early and frequently with your shareholders as a potential acquisition unfolds. Shareholders who are kept in the dark may become convinced they are being cut out of their full value.
Your chances of getting shareholder agreement are improved if you clearly show the transaction is fair to all. Use the assistance and advice of independent parties, such as M&A advisors and legal counsel who bring experience and credibility.
Independent advisors can show the transaction is at fair value by providing a valuation or fairness opinion. They can calibrate fair market value by bringing in several potential suitors so the price is set in a competitive environment.
Experienced advisors will help you avoid the pitfalls of transaction structures buyers might like but that unfairly allocate the purchase price to favor management and active shareholders. This is a common problem in private companies where some shareholders run the company while others are passive investors.
You may be able to pre-empt a potential dissident shareholder problem if you are considering a minority investment from a strategic partner by being aware these investments can be a two-edged sword. The investment may accelerate your business, but it may become a problem when you want to sell. If the offer is from a competitor to your strategic investor, you may find them unwilling to go along.
If you have a dissident shareholder problem the solution is most likely a business issue, not a legal matter. The most important thing to know is this: Why are they opposed to the transaction? What is the real basis for their concern? Once you know, then you can take appropriate steps with the assistance of your advisors.
A version of this article originally appeared in Soft•letter and Software Success.