As mentioned in the previous article “M&A in family-owned companies: Partial Sales”, there are occasions in which it is more favorable for the family to maintain a portion of the control of the company. In such cases, there is a figure that is quite relevant to maintain the structural organization of the company: the shareholders’ agreement.
This agreement establishes the way in which the company should operate, as well as the rights and obligations of the shareholders. However, its usefulness goes beyond organizational matters, since in the end they are the rules of the company’s operations in the long term. In the case of family businesses that carry out partial sales, maintaining control over these rules will help them to protect their interests and adjust to change. Specifically, there are three changes where this arrangement can help the family: loss of decision-making power within the business; loss of social influence related to the business; and loss of control over finances.
As we can imagine, all of these adjustments can be difficult for the family to assimilate: being accountable to a third party, working with people with different approaches to the business, realizing that they cannot spend the company’s money at their own discretion, and so on. Fortunately, all of this can be mitigated if there is a robust shareholder agreement. To that end, the agreement should include the following:
- How major decisions are to be made and the role of the family in these.
- How the board will be constituted and the family’s participation on the board.
- Who will lead the company on a day-to-day basis?
- What will happen if there is any disagreement between the family and the investor in the future
- When and under what conditions the family will be able to sell the percentage of the company it holds.
Due to the importance of its content, the mergers and acquisitions specialist in charge of carrying out the agreement must be very meticulous in its elaboration. In addition to all that has already been mentioned, he/she must take into account the specific circumstances of each case, such as the family’s connection with the company, its organization, the type of business, the industry, and the jurisdiction in which it operates, among other things.