How shareholders can separate sensibly

In our consulting practice, we repeatedly encounter situations in which partners wish to separate from each other without having agreed on appropriate legal rules.

The reasons for this are varied; here are a few examples:

  • Company founders who, after many years together, have developed different interests, for example, one partner who wants to retire while the other remains active.
  • Family constellations in which cousins ​​or siblings no longer get along.
  • Joint ventures are also often faced with the challenge of a fair separation.

In practice, we frequently see partners seeking a separation without having clear contractual arrangements in place for this case. To resolve such situations in an orderly manner, five approaches have proven effective, which may be useful depending on the situation.

Five proven ways to separate

1. One shareholder buys out the other

An obvious option is for one shareholder to buy out the other completely. In this case, one party takes over all of the other’s shares and continues to run the company alone. Important factors include a fair valuation of the shares and sustainable financing, such as a seller loan, a phased share purchase, or an earn-out model. A prerequisite for success is the acquiring shareholder’s sufficient financial strength to cover the purchase price and continue to run the company in a stable manner.

2. Entire sale to a third party

Alternatively, a joint sale of the entire business to an external third party can also be made. This option makes sense if none of the partners wants or can continue alone. They join forces to find the best buyer, which often increases the chances of an attractive purchase price.

3. Bidding Procedure

Proven solutions are available even in conflict-prone situations. A particularly effective procedure is the bidding procedure, also known as a “shoot-out.” In this procedure, the shareholders agree on clear rules in advance and submit each other secret offers to purchase the shares. The bidder with the higher bid acquires the other party’s shares. This procedure ensures a fair valuation and prevents protracted disputes. The prerequisite for success is, above all, the binding establishment of these rules, which serves as the basis for smooth and fair implementation.

4. Postponed Exit

Sometimes, however, an immediate sale is not possible or desirable, for example, because operational responsibilities still need to be transferred or tax deadlines need to be met. In such cases, a deferred exit is a viable option. The company initially remains in existence, but clear contractual rules for a later exit are already established. This provides planning security without having to act immediately.

5. Partial sale to a third party

Finally, a partial sale to a third party can also be a solution. In this case, an external investor steps in instead of the departing shareholder. It is crucial that the remaining shareholder and the new partner agree on clear exit conditions early on, such as pre-emption rights, co-sale rights, or future valuation mechanisms.

Conclusion

Each of these options has its advantages and disadvantages and should be carefully considered, taking into account the economic, legal, and personal circumstances. A separation between shareholders is often an emotional and complex matter. By defining clear rules early on and taking a structured approach, conflicts can be minimized and the best possible path forward for all parties involved.

If you would like to resolve a shareholder dispute or are considering a company sale, please feel free to contact us.

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