Essential Business Finance by Paul Barrow
Author:Paul Barrow
Language: eng
Format: epub
Publisher: Kogan Page Publishers
Controlling shareholders
It is not uncommon for ownership (even of private companies) to become quite widespread over the years. The original founding owner may pass some down to partners and children. In some cases these people might not even be involved in the business – the transfers are done primarily for inheritance tax planning purposes. This can bring a new dynamic to the question of a sale. Technically the person (or persons) who controls 51 per cent of the ordinary shares of a company can sell the business and the rest of the shareholders will be bound by that decision (in most cases). Of course, if there is any evidence of fraud being committed against the minority shareholders then they can put their case to the court.
The objective is to ensure that all the shareholders are singing from the same hymn sheet. You do not want a situation where the majority shareholder, who is negotiating one deal, finds out (as times goes on) that another group of shareholders has become dissatisfied with this deal and started its own negotiations with another party. Ludicrous as this may seem it has happened before – in fact it is quite common practice with public companies. You may have read in the press about ‘hostile’ takeovers going on where one set of shareholders favours one deal and a second set favours another.
The key to ensuring that all the shareholders are kept in line is to discuss the matter in advance and have a shareholders agreement in place. This written agreement is the evidence you will need to convince a buyer that they are dealing with someone who has the authority to negotiate a deal.
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