Keeping a minority stake after you sell: what has to be in writing before you sign

This list is for the owner who sells the majority of the company and keeps 10 to 30 percent: it gathers what has to be in writing before closing so that the stake remains an investment rather than a position someone else decides about. Swiss company law gives little to a shareholder who no longer holds the majority: a right to information at the general meeting, the ability to put an item on the agenda from 5 percent of the capital, and to call a meeting or demand a special audit from 10 percent. Everything else, the exit, the price, the dividends, the board seat, comes only from the articles of association and the shareholders' agreement, and those two documents are negotiated at the same time as the price of the majority, never afterwards. Elsewhere, in Germany or Austria, the law sets other thresholds and other rights; nowhere does it arrange, on your behalf, a minority exit at an agreed price.

Picture a precision engineering firm of fifty people, owner aged 61, who sells 75 percent to an industrial group and keeps 25 percent "to support what comes next"; a scenario, not a client. The sale agreement runs to forty pages; the rights attached to the 25 percent take up two lines, which refer to a shareholders' agreement "to be concluded". In the mandates I lead, that cross-reference is what costs the most three years later.

In the right place

1. Transfer restrictions in the articles, not only in the agreement. A shareholders' agreement binds only those who signed it; a consent clause written into the articles binds the company itself and any future buyer of the shares. If the buyer sells on, the first protection travels with the shares, the second stays in a drawer.

2. Qualified majorities, listed and quantified. Swiss law reserves certain decisions for two thirds of the votes; with 25 percent you block nothing that matters, unless the articles raise that threshold for a precise list: change of purpose, capital increase, merger, sale of a substantial part of the assets, transfer of the registered office. Keep the list short and set the threshold at a level your stake reaches. Elsewhere the statutory threshold differs: check what your stake actually blocks before you sign.

3. The auditor kept in place. Under Swiss law, waiving the limited statutory audit requires the consent of every shareholder. Your 25 percent is therefore enough to keep an independent auditor, and that is often the only verified information you will receive. Where the law requires no audit, write one into the agreement.

The exit, before everything else

1. A put option, with a date and a formula. Without an exit clause, a minority in an unlisted SME sells to nobody but the majority holder, at the price he proposes. The put option fixes the moment when you can demand to be bought out, often three to five years after the sale, and the formula that will set the price: an agreed multiple of average EBITDA over the last financial years, or the price paid for the majority, indexed.

2. A symmetrical call option, kept within bounds. The buyer will want to be able to acquire your shares on his own initiative; accept it at the same formula, with a floor that at least matches the price per share paid for the majority, otherwise you are financing a discount you never negotiated.

3. Tag-along rights, at the same price. If the majority holder sells, you must be able to sell with him, on the same terms per share, control premium included. The reverse clause, the drag-along obligation, will be demanded by the buyer; tie it to a minimum price and to cash payment.

4. The expert question, settled while heads are cool. Every formula leaves room for interpretation: adjustments, net debt, reference year. Name now how an independent expert will be appointed and state that the valuation is final; that is what keeps you out of court over a number.

Living at twenty-five percent

1. A written distribution policy. The majority holder can reinvest all the profit for ten years, or pay himself through management fees invoiced by his holding company rather than through dividends. A distribution rule, a share of net profit above an equity threshold, and a cap on intra-group charges protect the only source of return your stake has before the exit.

2. Information rights beyond the statutory minimum. Monthly accounts, annual budget, audit report, board minutes: write down the list and the frequency. Without that, you will learn how your former company is doing once a year, at the general meeting.

3. The board seat, or the observer status, decided now. Staying on the board after selling is neither a right nor always a good idea; a seat carries director's liability, an observer status delivers the information without the risk. Choose, and write it down.

4. Protection against dilution. Pre-emptive subscription rights exist in Swiss law, but the general meeting can withdraw them with two thirds of the votes. Provide that no capital increase can take place without offering you your share, at a price based on the same formula as the exit.

5. Your personal guarantees released at closing. Bank sureties, mortgage notes pledged as security, commitments made for the company: their release is signed with the sale, not with the exit of the minority. A seller at 25 percent who remains guarantor for 100 percent carries a risk his price does not pay for.

6. Consistency with the other documents. The non-compete clause, any seller loan and the employment or consulting contract that keeps you in post must run on terms that answer each other; a five-year put alongside a seller loan repaid over seven leaves the seller as creditor of a company he no longer owns a share of.

7. The tax treatment of the second sale, covered by the ruling. In Switzerland, the gain on your remaining 25 percent belongs in principle to private assets and is not taxed, like the gain on the majority, but the indirect partial liquidation risk runs for five years after the first sale, and a buy-out paid out of the company's reserves can trigger it. Have the minority exit covered by the ruling requested for the main sale. In other countries the mechanism differs, but everywhere the second sale deserves the same tax check as the first.

What I see is that the seller negotiates with whatever energy he has left, and he has little of it by the time the 25 percent comes up. The buyer reaches that chapter knowing he will control the company. The retained stake is worth only what its clauses make it worth; keeping 25 percent without a put option amounts, in practice, to lending with no maturity to a borrower who alone decides when he repays. The opposite move, selling a minority first and keeping control, raises the same question from the other side of the table, and has the merit of raising it beforehand.