minority holding
Dancing to the beat of a different drummer
You have a company and would like to include a minority shareholder in your company? Or would you yourself like to acquire a minority interest in a company where somebody else sets the tone?
As lawyers and tax consultants, we can advise you on the specific tax and corporate law issues that arise with minority shareholdings. If the participation of the minority shareholder is supposed to be more than just a passive capital investment, we will assist you – especially in defining co-determination rights.
How can a minority shareholder exert influence?
It is the very nature of minority holdings that the shareholder with the smaller shareholding cannot run the company. And yet there is an important question for all parties: How much power does each party have?
The minority shareholder will rightly ensure that they retain at least enough influence to continue pursuing and, ultimately, to achieve the entrepreneurial goals defined prior to participation. And that is why the minority shareholder will see to it that their consent is needed for certain fundamental decisions. The careful definition of such matters can be vital to the success of the participation – on both sides, in fact.
It is particularly important to understand which goals both shareholders are pursuing with the investment. If the minority shareholder is mostly concerned with their capital investment and possibly with the opportunity to successfully sell the holding later, their primary rights will concern an exit strategy. If, however, the minority shareholder primarily pursues an operational goal – such as access to a certain technology, or securing a certain channel for sales or procurement – they will want to ensure that this goal is not jeopardised by conflicting business decisions.
And should there be a stalemate because different mindsets cannot be reconciled, there must be a process that enables a face-saving and acceptable decision for all parties.
Our experience indicates that trust-enhancement measures which enable the minority shareholder to lock in control and inspection rights are a proven solution.
Ending a minority holding
Another important question for all parties: When, by whom and at what price can the minority shareholding be terminated in a dispute? Here, the contractual details depend on what the shareholders expect from their long-term participation in the company.
The typical solution is that, in the event of a dispute, the majority shareholder can or must buy out the minority shareholder – but this is not always desired. Occasionally, a different option may also be appropriate: a joint sale forced by one side, for instance, or possibly splitting the company.