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Shareholders Agreement Exit Strategy

However, a company may issue exchangeable shares that allow the shareholder to return the shares to the company and cash in its initial investment. This may be an attractive option for shareholders who come as short-term investors and try to take advantage of a regular dividend payment. The right of pre-emption (also known as preferential or pre-emption right) requires a shareholder who wants to sell his shares and withdraw from the company to put the shares up for sale to the existing shareholder before being sold to a third party. The other question is how you will sell your shares in this company and therefore your interest in the company. This should be taken into account when developing the shareholder contract and should not be left to chance. However, it is not as easy and easy for minority shareholders to sell their shares in a private company. This is particularly the case when the incorporation of the company limits the ability of its shareholders to sell or transfer their stake. Are they looking for a lifetime business or a short-term investment opportunity? The answer often determines the likely exit scenario. Knowing this in advance can help the company plan the best strategy by adopting agreements and avoiding unnecessary litigation below. Under this clause, the majority shareholders effectively “pull” all reluctant minority shareholders to ensure that the sale of the business passes. The shares must be sold at the same price by majority and minority shareholders.

If a shareholder wishes to leave the company but there is no buyer for his shares, it may be reasonable for a shareholder to return his shares to the company without consideration, i.e. to return the shares to the company. A share donation should be approved by the Board of Directors. If the company that received the gifted shares does not intend to transfer them to a third party, the shares sold to a company are generally cancelled. In general, in the same breath that Tag-along discussed is “drag-along”. This situation is similar to that of tag-along, but assumes that the potential buyer is only interested if he can buy all the shares. Drag-along therefore obliges the minority to sell on the terms agreed by the majority. The effect described above, namely that all shareholders have only an incentive to cooperate, applies here as well.

In this blog, we will consider some of the most popular shareholder exit strategies and mechanisms used by limited companies and focus on how a shareholder pact can help facilitate shareholder exit. Once again, the main requirement is to ensure that the terms of your will are not in contradiction with the commitments you have under another agreement.