Tuesday, 28 February 2017

Selling a business can be tricky

Selling your business could be difficult if minority shareholders decide to block the deal – but a Telford solicitor says there are steps you can take to ease the situation.

Andrew Oranjuik is a Partner at Martin-Kaye Solicitors in Telford, and he specialises in commercial litigation.

He said: “Sometimes an offer that’s too tempting to ignore comes in and selling your business seems like a great way forward. But if you don’t own all your company’s shares, you may need the approval of your shareholders to accept the deal.

“But shareholders can’t be forced to sell their shares and it’s unlikely a buyer will want to take on a company with minority shareholders hanging on, which means they could be a real stumbling block when it comes to sealing the deal.”

Mr Oranjuik said one solution would be for the company to sell its trade and other assets, rather than for the shareholders to sell their shares.

“But there’s a drawback as when you sell your business, the money from the sale goes to the company. For you and the other shareholders to access the money, it has to be paid out as a dividend or the company will have to be wound up, so this may mean more of the sale proceeds are lost in tax compared with a sale of shares.”

Mr Oranjuik said if the buyer was purely interested in buying the entire company, then selling shares was the only option.

“The best way to achieve this is to introduce a ‘drag along’ clause in your company’s shareholders’ agreement – this means if the majority of shareholders are keen to sell the business, then the others are required to agree.

“If you don’t already have a clause like this, then act now to add one to your agreement. It just requires a vote from all shareholders to have it added. But you may need to negotiate on the terms and conditions as minority shareholders will want assurances that they will get a decent deal if a buyer comes in.”

Mr Oranjuik said an agreement which included a drag clause would also have a tag along clause too.
“This gives minority shareholders the right to force majority shareholders to include them as part of any deal to sell their shares, ensuring their shares are not devalued as a result of a sale that goes ahead without them.

“No shareholders can be forced to sell their shares, but you can ensure clauses are in place to help smooth out the process if a tempting deal is on the table.”