Proceed slowly as there are a number of concerns with this type of arrangement. Before proceeding, you will need to complete an estimate of value to determine an appropriate purchase price. Note that there are implications as a result of not having a controlling interest. As such, your protection will come in the form of a comprehensive shareholders agreement and an employment agreement.

As a minority shareholder, it is important that you take the initial time to incorporate a detailed operating and management agenda right from the outset. Your rights are limited and as such, certain precautions must be taken to ensure that there is some protection provided for your investment. Once you are comfortable with the issue of value, get ready to commence with the heavy lifting. Rosulacarpco That is to say, before proceeding, a comprehensive shareholders agreement must be completed, focusing on the following. :

  1. Will your purchase proceeds remain in the company to reduce debt or increase working capital or will these funds be removed from the company by the current owners?
  2. What security, if any, is to be provided to your investment amount?
  3. What will the company’s dividend and profit participation policy be in the future?
  4. What are the future buy/sell arrangements with respect the common shares of the company? Both you and the other shareholders should have the ability to have first right of refusal to acquire the shares from each other. In addition, in the event that the majority shareholders were undertaking to sell their shares, you should have the option to sell your shares to the same purchaser under the same terms and conditions as they have.
  5. What mechanism is being provided which would allow for an arbitration or dispute resolution in the case where you feel that as a minority shareholder, a certain business decision will result in an impairment of your share value.

Finally it is equally as important that you obtain an Employment Agreement. This agreement would outline your compensation and benefits and would also focus on the impact of termination and the related requirements for the majority shareholders repurchase your 20% minority shareholding.

Norman Seawright, CA

Norman Seawright, CA is President of NewCap Financial inc., specializing in providing strategic consulting services related to the buying and selling of businesses, corporate finance and corporate and estate mediation services, (905) 474 5617#263 or email:

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