Can I be forced to sell my share?

JD writes: 25 years ago I bought a boatyard with some other people. After various retirements and deaths, only five of us are left, each with an equal shareholding. Now three of the partners want to sell the yard for possible development and two want to retain it. Can the three force the other two to sell the company, which owns the freehold? Our original joint-venture agreement states that a partner may sell his share(s) on the open market, but there is no clause covering this particular circumstance.

Answer

Unless there are specific clauses in a shareholders' agreement, the three shareholders who wish to sell cannot force the other two to sell their shares, writes Chris Lane, partner in Kingston Smith LLP. It is usual practice to include such clauses, known as "drag along/tag along" rights, into shareholders agreements to protect minority shareholders. These allow a shareholder to force a potential buyer to purchase all the shares in the company rather than just a simple majority.

The buyer would be looking to take control of the board of your company and then do as he wishes with its assets. He would own 60% of the company and would therefore be able to determine who the directors of the company are. The two remaining shareholders would be minority shareholders.

In the absence of any restrictions in the shareholders' agreement, the board of directors has control over the assets of the company and a simple majority of the directors could agree to sell the assets of the company.

It would therefore seem that you have little control over the situation and it may be in your best interests to sell your shares as well, otherwise you will be left with a minority holding.