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Adrian Anderson, partner and head of the corporate department at Ralli Solicitors features in this week’s Insider Media Limited.

16 February 2009

Every week Insider invites readers of the Insider Daily newsletter to submit their questions about deals, corporate finance and funding to top professionals from the North West dealmaking community.

This week and next, Adrian Anderson, partner and head of the corporate department at Ralli Solicitors, answers your questions about the rights of shareholders in a deals process, restrictive covenants and other shareholder issues.

All answers are for general guidance only. Each case must be handled on individual facts.

Q: I am managing director of a medium-sized company. My board and I are majority shareholders, but there is a handful of minority shareholders remaining from when the business was family owned. We are now looking to sell the company can we compel the other shareholders to agree to the sale?

A: “The majority can only compel the minority to sell when they have what are known as ‘drag along’ rights. These will appear in the Articles or in a Shareholder Agreement. Most companies do not have these.

“In the absence of these, the selling shareholders have no rights, but those buying the company do. If they have acquired 90 per cent of the shares, they can compel the 10 per cent minority to sell to them. Problems will clearly arise when the minority is more than 10 per cent.”

Q: We have received interest in our business from a private equity investor who wants to take a 30 per cent stake in the company. Do we need agreement from all the shareholders for this?

A: “If the shareholders have given the directors the power to allot shares at their discretion without regard for the existing shareholders’ normal rights to participate in a new issue of shares, then new investors can be let in; but this sort of arrangement will usually need 75 per cent of the shareholder support, because it will almost certainly involve an alteration of the Articles at the request of the investors.”