Insight Associates provide outsourced accounting and Finance Director services to ambitious and growing businesses. We work as your only resource or with existing staff to give you complete financial support including monthly management accounts, high level financial advice, robust controls and financial systems, funding and business planning, payroll & compliance, VAT returns and statutory compliance.

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Tuesday, April 25, 2017

Rogue Shareholders



Several years ago I was involved in a sale which almost fell apart, because the company had one shareholder who was dead against the deal.

He didn’t care that he was outnumbered three-to-one. He saw himself as the responsible one, holding out against a short-term deal to make a quick buck.

The others had all been courting this buyer for some time, working towards a sale for a couple of years. But they’d never really talked to the fourth shareholder about their plans.

Perhaps that wasn’t surprising, given that he hadn’t been involved in the business for a number of years. But it was a mistake.

If you have multiple owners in your business, you really need to know – way ahead – what will happen if shareholders have differing views about selling up.

‘Rogue shareholders’ can cause huge problems, sometimes by refusing to sell, and other times by selling to the wrong party – a rival company for example. Or they may just threaten to sell, trying to gain the upper hand in a dispute.

It’s essential that you’re covered by a shareholders’ agreement – and that you draw one up early on.

A shareholder’s agreement is a binding contract between the co-owners of a business, outlining how it’s run, and also what happens if anyone decides to sell their shares (a sort of prenuptial agreement!).

It can control when owners are allowed to sell their shares, who can buy them, and what price will be paid. Some shareholders’ agreements will state that shares can only be sold when an owner retires, goes bankrupt, becomes disabled, gets divorced, or dies.

Others allow more freedom – but still lay down clear processes to follow. 

For example, there’s another company we work with which has two owners, one of whom has decided to retire early, in his 50s, and sell his share of the business.

Because they have a shareholder’s agreement, there is already a defined path to let that happen smoothly.

All the owners of a business want to profit from it. But if you don’t think about exits right from the beginning, disputes will severely damage the very asset you all need to build.

A shareholder’s agreement is just one of the pieces you need in place if you ever intend to sell your business. If you want to get your company ready to sell, please feel free to get in touch and let’s talk about how we can help.

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