One of the most common outcomes sought in a shareholder dispute is an exit — a structured process by which one shareholder buys out another. But achieving a fair exit when the parties disagree on value, timing or terms is rarely straightforward. This article explains the mechanisms available and how they work in practice.
What Does a Shareholder Exit Involve?
A shareholder exit involves one party transferring their shares to another. The key issues are: who buys the shares, at what price, on what terms, and in what timeframe. When shareholders agree, this can be straightforward. When they don’t, legal mechanisms come into play.
Mechanisms in a Shareholders Agreement
- Pre-emptive rights — requiring a departing shareholder to first offer their shares to existing shareholders
- Drag-along rights — allowing majority shareholders to compel minority shareholders to sell on the same terms as a majority sale
- Tag-along rights — allowing minority shareholders to join a majority sale on the same terms
- Buy-sell clauses (Russian roulette or shotgun provisions) — allowing either party to trigger a mechanism where one buys out the other at a nominated price
- Compulsory transfer provisions — requiring a shareholder to sell their shares on certain events such as termination of employment
When There Is No Agreement — or the Agreement Does Not Help
- Negotiated settlement — the parties agree on terms without relying on formal mechanisms
- Oppression proceedings — where a forced exit constitutes oppressive conduct, the Court can order a buyout and determine fair value
- Winding up on just and equitable grounds — where the relationship has irretrievably broken down
How Is Share Value Determined?
The valuation of shares in a dispute context is frequently contested. Key issues include whether a minority discount applies, the valuation date, inclusion of goodwill, and adjustments for the majority’s conduct. Courts can appoint independent experts to determine fair value. EAGLEGATE works with qualified business valuers and forensic accountants where necessary. Contact our Brisbane and Queensland team for a confidential consultation.