Q: I want to sell my agency and retire, but I am worried about something: Although I own most of the stock of my corporation, I have a few minority owners, including one long-time employee, and they may not agree to go along with the sale of the agency, or they may try to hold out for a better deal for themselves. Must they agree to the sale, and if so, how can I get them to agree? If it is not necessary for them to agree, then what would I owe them once the sale goes through?A:
Whether you can legally sell the agency without the other owners' consent depends on four factors: (1) whether the sale will be a stock sale or an asset sale; (2) whether the corporation has any charter provisions dealing with the subject; (3) whether there is a stockholders' agreement among the owners; and (4) what state your agency was incorporated in.
Let's take the easiest scenario first: if the buyer wants to do a stock purchase, he will undoubtedly want to buy 100% of the stock. In that case, you clearly need the consent of all the stockholders.
The only exception would be the unusual case where there is a stockholders' agreement containing a provision requiring the minority owners to sell if the owner of the majority of stock decides to do so. Such a clause is called a "drag-along" right, since the majority owner can require the other owners to sell at the same time.
Not only is a drag-along clause unusual, but any sort of stockholders' agreement at all is also unusual in a small business. Although every lawyer advises co-owners to have such an agreement, my experience is that most co-owners never get around to doing one.
If you don't have such an agreement, you may have to induce the other stockholders to go along by offering them a premium for their shares or something else that they want, such as an employment contract with the buyer.
Now, let's assume that, as in most business acquisitions, the buyer wants to do an asset purchase instead of a stock purchase. In that case, look to the corporation's articles of incorporation, bylaws or stockholders' agreement to see what kind of votes are required to approve major decisions, such as the sale of the assets of the corporation.
If your articles of incorporation do not cover this subject, if you don't have any bylaws, if your bylaws do not cover this issue or if you don't have a stockholders' agreement, you have to look to the corporation law of the state of incorporation of your agency. For example, if your agency is in Ohio but you are a Delaware corporation, you have to see what requirements the Delaware corporation law imposes.
Under the Delaware law, a corporation's assets can be sold if the holders of more than half of the shares approve. If some stockholders oppose the sale, you need to be sure to follow all the proper notice and quorum requirements for meetings of the board or directors and the stockholders; otherwise, you could be vulnerable open to a court challenge of the sale.
On the other hand, if your corporation was incorporated in Ohio, you would have had to obtain the approval of the owners of two-thirds of the stock.
Once you sell the assets of your agency, you need to distribute the purchase price in proportion to the stock ownership. Even if you do so, a disappointed minority shareholder could still ask a court for an appraisal, hoping to get more money.