If you are a business owner, director, majority shareholder, or minority shareholder thinking about selling a company, it’s important to understand how shareholder rights, company documents, and voting rules affect the process.
A common question is: Do all shareholders have to agree to sell a company?
The answer depends on several factors, including the shareholders agreement, the company’s articles of association, the type of share sale, and applicable company law.
This guide explains everything you need to know to navigate company sales smoothly and protect your interests.
Understanding Shareholder Agreements and Company ArticlesShareholders Agreement
A shareholders agreement is a private contract between existing shareholders that defines how the company operates and how shareholders holding shares must behave in major decisions. It typically covers:
- Restrictions on share transfers: Conditions limiting when shareholders can sell their shares.
- Pre-emption rights: The right of other shareholders to buy shares before they are offered externally.
- Tag-along rights: Protection for minority shareholders if majority shareholders sell.
- Drag-along rights: Allowing majority shareholders to force a sale from minority shareholders if the company is being sold.
Practical Example:
Suppose a buyer offers to purchase 100% of the company’s shares. Shareholder A owns 70%, and shareholders B and C each own 15%. If a drag-along right exists, A can require B and C to sell alongside them, ensuring the buyer gains full ownership.
Articles of Association
The articles of association are the company’s internal rulebook. They typically cover:
- Voting rights across different classes of shares.
- Decision-making procedures for approving major transactions, including a share sale.
- Share transfer rules outlining how and when shares can be sold to a new shareholder.
In most companies, approving a sale requires a special resolution, needing 75% or more of shareholder votes.
Practical Example:
If the company’s articles of association require a 75% majority, a shareholder or group holding 26% of votes could block the deal unless rights like drag-along apply.
Do All Shareholders Need to Agree to a Sale?
Key Points to Remember:
- Drag-along rights allow a majority to force a full sale.
- Tag-along rights allow minority shareholders to sell on the same terms.
- Without special rights, a special resolution requiring 75% approval is usually needed.
- A buyer acquiring 90% of shares can initiate a squeeze-out.
- The Duomatic principle allows informal unanimous consent if every shareholder agrees.
Thus, not all shareholders need to agree in every case — but the correct legal steps must be followed.
Legal Precedents and ConsiderationsRussell v Northern Bank Development Corp Ltd
This case confirmed that shareholders can privately regulate their own actions but cannot override the company’s statutory powers under company law. Agreements must complement, not conflict with, formal governance structures.
Squeeze-Out Provisions (Companies Act 2006)
If a buyer secures 90% or more of the company’s shares through a share sale, they can trigger a squeeze-out under Section 979 of the Companies Act 2006.
This forces remaining minority shareholders to sell at fair value, ensuring a clean transfer of ownership.
Practical Example:
After buying 91% of shares, a buyer can legally compel the remaining shareholders to sell, even if one shareholder resists, provided proper procedure and compensation are given.
Conclusion
Whether all shareholders must agree to sell a company depends on the company’s agreements, documents, and the rules set by company law.
Understanding your basic rights as a shareholder — whether a majority or a minority — is crucial for protecting your interests during a sale.
A well-prepared company sale considers the rights of every shareholder, carefully applies the correct resolutions, and ensures any legal action risks are managed early.
Next Steps for Shareholders Considering a Sale
If you are preparing for a sale:
- Review the shareholders agreement and company’s articles of association.
- Identify any drag-along, tag-along, or pre-emption rights.
- Understand the required voting rights threshold for approving a sale.
- Clarify how different classes of shares might affect voting.
- Check for squeeze-out possibilities if selling to a large buyer.
- Seek professional advice early to avoid costly misunderstandings.
- Prepare clear documentation for any legal action if disputes arise.
Proactive steps help avoid delays and protect both minority and majority interests in the process.
Stronger Final Thoughts
Selling a company is a major decision that affects everyone involved, from directors to minority shareholders.
By understanding your rights, checking key documents like the company’s articles of association, and seeking the right support, you can complete a sale smoothly and protect your financial future.
Strong preparation, clear communication, and early advice are the keys to a successful exit.
FAQs About Selling a Company
Q1: Can a minority shareholder block the sale of a company?
A: Generally, no. If the necessary majority supports the sale, and drag-along rights or special resolution thresholds are met, a minority shareholder cannot block the transaction.
Q2: What happens if a shareholder refuses to sell during a squeeze-out?
A: Provided the buyer owns at least 90% and follows the correct process, the minority shareholder must sell at fair value.
Q3: Can a shareholders agreement override the articles of association?
A: No. While a shareholders agreement controls the relationships between shareholders, the company’s articles of association govern how the company itself operates and take precedence if there is a conflict.
Q4: What if there is no shareholders agreement?
A: If there is no shareholders agreement, sales decisions depend purely on the company’s articles, voting thresholds, and rules under company law.
Q5: Can directors sell company assets without shareholder approval?
A: Directors manage day-to-day operations, but a major asset sale (such as selling the business) typically requires shareholder approval by special resolution.
