As mentioned in previous articles, specifically in “M&A in family-owned companies: Shareholders’ Agreement”, one way to safeguard the stability of the family in partial sales is through the shareholders’ agreement. Within this, one of the most relevant points will be the veto rights.
These consist of the rights of the shareholders who have the minority of shares to reject certain resolutions of the General Shareholders’ Meetings. This is why they are an extremely important tool for minority shareholders. Especially in countries such as Colombia, where in the absence of contractual clauses granting the right of veto, the minority shareholder has very few possibilities to oppose important decisions.
Thus, the M&A lawyer should look for a good package of veto rights in order to protect the family. On the other hand, the mergers and acquisitions specialist will have to be very meticulous with the list of veto rights that the family has so that, from the buyer’s point of view, its interests are not affected. The length and impact of that list will depend at the same time on the percentage of shares held by the minority.
For example, the family that keeps 15% of the shares will not have the same rights as the family that keeps 49%. In the first case, the list will usually be limited to rights that protect the shareholder’s economic investment. In the first case, the list will usually be limited to rights that protect the shareholder’s economic investment.
In the second case, the shareholder will also have the possibility of requesting participation rights, for example, to exercise a veto over the business plan, the annual budget, the execution of certain agreements, etc.
Finally, it is important to mention sunset clauses, which are very common in this type of agreement because of their usefulness to the majority shareholder. The provision contents that the minority shareholder may lose some or all of its veto rights in the event that the percentage of its shareholdings changes.