Are You Protected as a Minority Shareholder? 4 things you need to know
If you own a minority share in a business, how much protection do you actually have?
Owning 15%, 20% or 30% can leave you in a very different position to the majority shareholders, particularly when it comes to profits, getting your money out, or what happens if the business is sold.
There are four key protections we recommend minority shareholders have in place from the outset.
In this short video, I explain what they are and why they can make such a difference.
If you’re investing in a private company or already hold a minority share, this is worth knowing.
Working with you,
Ross Millen & The Millens Team
Ross Millen:
Hi. The other time, I was talking about what happens when you're 50-50 in a business and the protection you can have with a shareholders' agreement. But someone said to me, "Well, what happens if I'm in a minority position? What if I've only got 15 or 20 or 25, 30%? What are the key things that I need to put in place to protect myself having a minority interest in a private company?"
I said, "Look, I think there's four key things. First one is make sure there's a dividend policy so that the majority can't starve you of dividends throughout the life." There's a guaranteed minimum, whether it's 30 or 40 or 50% of the profit, but at least there is a baseline. The other thing is that if there is going to be a sale by the majority, you want to have what's called tag-along rights, so you can make sure that the person that buys the majority shareholder also has to buy you out at the same price. So that's the second one, tag-along.
The third one is to make sure you've got some exit available. So that whether it's after one or two or three years, some period of time, you've got the right to put your shares to the majority or the other shareholders and they're obliged. They must buy you out at fair value, but they must buy you out. So you've got an exit because else, how are you going to sell your minority interest in a company?
The final fourth thing is to make sure there's no way that money is leaking out of the business while you're in a majority position. So the majority can't pay excessive salaries to themselves or employ their family or engage a company they're associated with and pay them over the top. So make sure there's no funds leaking out. So I'm sure if you concentrate on these four key things, you'll make sure your minority interest is protected. So for all your needs with shareholders' agreements or investments in private companies, contact me, Ross Millen, or anyone else at the Millens Team. We're here to help you.