Entrepreneurship & Small Business

Ways to exit a business with multiple shareholders

  • Last Updated:
  • Oct 28th, 2018 6:06 pm
[OP]
Deal Addict
Sep 23, 2007
4433 posts
781 upvotes

Ways to exit a business with multiple shareholders

I know someone will say get a professional lawyer or accountant but I want to know the general options first:

I have shares in multiple corporations related to this business. I am not a majority shareholder in any of them. My share % range from 15% to 30%. The business has been going down and I am contemplating my options. I know the simplest way is if my partners in each corporation buy my shares but with the sales taking a negative pattern, I am not clear if anyone will buy, whether it is a partner or an external person. I can't afford to keep putting money into the business if sales follows this downward trend.

Is there a legal way for me to just "quit"? Anyone with experience in this? Want to know my options.
15 replies
Sr. Member
Nov 13, 2006
789 posts
415 upvotes
Find someone who wants to buy the shares for even $1. or sell them back to the other partners for dirt cheap.
Deal Guru
Aug 2, 2010
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Here 'n There
You can't just quit owning shares, ie you need to transfer them to someone else, but I am wondering why you feel you need to? Share ownership does not carry with it the requirement to invest money in the business you own shares of. Do you have an agreement with your other shareholders/partners that you must invest money in the business according to some formula as long as you are a shareholder? If not then hold onto your shares and stop putting money in. If you do have such an agreeement and you stop putting money in then depending on how the agreement is written they might be able to successfully sue you, but I have never seen an agreement like that.

You need to provide a bit more information about what is creating a requirement for you to keep putting money in.
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Dec 24, 2007
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BC
eonibm wrote:
Oct 24th, 2018 9:35 am
If not then hold onto your shares and stop putting money in. If you do have such an agreeement and you stop putting money in then depending on how the agreement is written they might be able to successfully sue you, but I have never seen an agreement like that.

You need to provide a bit more information about what is creating a requirement for you to keep putting money in.
Ditto.

Unless there is a shareholder's agreement there is no obligation to put more money into a sinking venture. Since you don't believe in the company anymore best try to get someone to buy your shares and recoup some of the investment. Failing that you can just hang onto the shares and hope it turns around.
Deal Fanatic
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Sep 1, 2005
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Woulda/coulda/shoulda had a good shareholders agreement before you got into business together.
We're all bozos on the bus until we find a way to express ourselves...

Failure is always an option...just not the preferred one!
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gr8dlr wrote:
Oct 24th, 2018 3:56 pm
Woulda/coulda/shoulda had a good shareholders agreement before you got into business together.
A good shareholders agreement would not have prevented the business failing. The only thing that helps to prevent that is good management, competitive advantage, financing, etc. Shareholders agreements basically govern how you can deal with your shares, buy-sells, etc.
Newbie
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Oct 30, 2017
47 posts
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Ottawa, Ontario
BananaHunter wrote:
Oct 23rd, 2018 2:07 pm
I know someone will say get a professional lawyer or accountant but I want to know the general options first:

I have shares in multiple corporations related to this business. I am not a majority shareholder in any of them. My share % range from 15% to 30%. The business has been going down and I am contemplating my options. I know the simplest way is if my partners in each corporation buy my shares but with the sales taking a negative pattern, I am not clear if anyone will buy, whether it is a partner or an external person. I can't afford to keep putting money into the business if sales follows this downward trend.

Is there a legal way for me to just "quit"? Anyone with experience in this? Want to know my options.
easliest way is to have the corporation to "redeem" the shares from you. since the company is in negative, there shouldn't be gain.
thank you very much
Philip Kwok, CPA, CGA
Member
Nov 12, 2014
446 posts
248 upvotes
Kingston, ON
eonibm wrote:
Oct 24th, 2018 8:09 pm
A good shareholders agreement would not have prevented the business failing. The only thing that helps to prevent that is good management, competitive advantage, financing, etc. Shareholders agreements basically govern how you can deal with your shares, buy-sells, etc.
It would set out the options if one shareholder wanted out, though....i.e. can he force the company to redeem them?
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Oct 30, 2017
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QN5252 wrote:
Oct 25th, 2018 8:29 am
It would set out the options if one shareholder wanted out, though....i.e. can he force the company to redeem them?
if the share has " retractable" option , it can force corporation to redeem it back
thank you very much
Philip Kwok, CPA, CGA
Member
Nov 12, 2014
446 posts
248 upvotes
Kingston, ON
PhilipK796978 wrote:
Oct 25th, 2018 8:37 am
if the share has " retractable" option , it can force corporation to redeem it back
Of course, but if it doesn't then what?
Newbie
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Oct 30, 2017
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QN5252 wrote:
Oct 25th, 2018 9:56 am
Of course, but if it doesn't then what?
if not, then you need to get the corporation to agree to redeem it from you. or sell the shares to other shareholders
thank you very much
Philip Kwok, CPA, CGA
Deal Guru
Aug 2, 2010
12700 posts
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QN5252 wrote:
Oct 25th, 2018 8:29 am
It would set out the options if one shareholder wanted out, though....i.e. can he force the company to redeem them?
I guess but then at what price? Then there are issues like what if the corp doesn't have the capital to buy the shareholder out, etc. What if the business is failing, then the corp doesn't want to have to buy the shareholder out, etc. I have never seen a shareholders' agreement have a clause like that. Typically it's just the restriction on selling and a shotgun buy-sell. In any event, it's too late now and BananaHunter has not provided any details on why he thinks he has to keep funding the company as a shareholder.
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Sep 1, 2005
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eonibm wrote:
Oct 25th, 2018 1:29 pm
I guess but then at what price? Then there are issues like what if the corp doesn't have the capital to buy the shareholder out, etc. What if the business is failing, then the corp doesn't want to have to buy the shareholder out, etc. I have never seen a shareholders' agreement have a clause like that. Typically it's just the restriction on selling and a shotgun buy-sell. In any event, it's too late now and BananaHunter has not provided any details on why he thinks he has to keep funding the company as a shareholder.
You can put whatever you want into a shareholders' agreement in my opinion, all that can happen is someone doesn't like it in which case, do you want to be in business with them. The whole purpose of it is to explore "what ifs'. It can define what if one shareholder doesn't want to fund $, it can define what if someone wants out, what are the limits of funding etc. The value IMO is that you talk to the other shareholders to hash out expectations and what if scenarios so that everyone understands what they're getting into.
We're all bozos on the bus until we find a way to express ourselves...

Failure is always an option...just not the preferred one!
Deal Guru
Aug 2, 2010
12700 posts
3117 upvotes
Here 'n There
gr8dlr wrote:
Oct 25th, 2018 3:59 pm
You can put whatever you want into a shareholders' agreement in my opinion, all that can happen is someone doesn't like it in which case, do you want to be in business with them. The whole purpose of it is to explore "what ifs'. It can define what if one shareholder doesn't want to fund $, it can define what if someone wants out, what are the limits of funding etc. The value IMO is that you talk to the other shareholders to hash out expectations and what if scenarios so that everyone understands what they're getting into.
As I was saying, the only terms that really make any sense are shot-gun buy-sells and restrictions on share transfer. As for other what-ifs you can't draw blood from a stone.
[OP]
Deal Addict
Sep 23, 2007
4433 posts
781 upvotes
Yes there is a shareholder agreement that says each shareholder put $$ in the same ratio as our share %. A shareholder agreement doesn't prevent a business from failing. It's corporation with only 4 shareholders. It's always easy to say in hindsight what we could have done better. We've done well for about 3 years and it's starting to look bad. Don't get me wrong, we can stay afloat but the winter season is really bad for our sales. We can weather it out by chipping some money in, and hope next spring/summer it will pick up again.

Why put money in? Because I'm not clear yet the business will fail? How would I know? We could keep chipping money in to keep it afloat. You are right I can stop putting money in. Then what? We have staff, rent, utilities to pay. So if I stop putting money in, other partners will likely follow suit. Then we just seek bankruptcy protection?

Someone talked about the corporation redeeming my shares. The corporation is not a robot. It's run by people. I can't just submit a request and the robot will say yes. Like I said, with the negative sales pattern, I'm unclear the other shareholders will want me to "escape". They have majority shares combined. I have minority shares. I'm aware of the transfer provisions in the shareholder agreement. Yes I can just give away my shares for like $1 each. But I've invested a lot of money into this corporation and hence I want to know all my options first. In addition to investing a lot of money, we also have a bank loan (my partners made the personal guarantee, but not me).

Perhaps let me be more specific. Say I tell my partners that I can't afford to put anymore money into the business and I'm willing to sell my shares, even for $1. If they refuse and start saying based on the agreement I need to contribute my %, then what? There is no going back once I start this topic. The lower sales has been a downer to all shareholders involved. Right now they are still working hard to try to make it work. But once I tell them I want to quit, I'm afraid it will start a negative chain reaction where the business may fail even faster as nobody wants to put in the effort anymore. You know what I mean? I can't exactly test the water without triggering a reaction from the shareholders so I must know all my options first.

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