Negotiating a Business Divorce with the Majority Owner

Home / Blog / Uncategorized / Negotiating a Business Divorce with the Majority Owner
Negotiating a Business Divorce with the Majority Owner

Usually, minority investors in private companies lack contractual exit rights that require a majority owner to purchase the investor’s shares in the business.  In cases where the viability of the business is threatened by an inept or corrupt majority owner, a minority investor needs to seriously consider their options for obtaining a business divorce.

The first step for an investor is to be sure you have a complete understanding of your rights.  This can be done by examining the company’s governing documents and financial records.  In Arizona, shareholders and LLC members have a right to examine certain records so long as the demand is made in good faith and for a proper purpose. The investor must make the request in writing and provide advance notice.  The investor should also consider retaining experienced outside counsel to assist in the process of seeking and examining these records.

If an investor has a contractual exit right, he or she should trigger that right once it is discovered that actions by the majority owner are endangering the viability of the company. If an investor has no contractual exit right, he or she will need to be realistic when it comes to negotiating a buyout. 

It is not uncommon for majority owners to deeply discount an investor’s interest value, since there is usually no ready market for the sale of that interest.  In this situation, it is best to be pragmatic.  While the investor may have to walk away with a reduced price for his or her shares, it is usually a better option than continuing to remain in business with a majority owner who is sinking the ship.

If the majority owner refuses to purchase an investor’s interest in the company, the investor will need to make a decision on whether or not to pursue other legal remedies, including litigation.  The company’s governing documents should be examined to determine if there are limitations to pursuing legal claims.

When you are facing any type of business dispute, you need an experienced Arizona trial attorney to obtain the best possible result. Contact Williams Commercial Law Group, L.L.P., at (602) 256-9400 to speak with us about your case.

Leave a Reply

Your email address will not be published. Required fields are marked *

The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us, though doing so does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established. Our description of what we believe to be superior technology and how we win cases reflects our typical approach to litigation, which we believe:  (i) gives us a competitive advantage, and (ii) is responsible for any success we have had. But we do not win every case. Other lawyers may have technology or approaches that they believe gives them an advantage. Also, the results that we have obtained in other cases or that are described in our clients’ testimonials do not guarantee, promise, or predict the outcome of your case, which depends on the law, facts, and evidence specific to it.