When you seem to be moving smoothly 

through contract terms with a buyer, remember that nothing is a done deal yet. Shareholder approval thresholds can be an issue. Typically, the buyer will require that a specified percentage of the shareholders have signed off on the deal before closing. ​


You want to keep this at a realistic level in sales and purchase contracts: 80 or 85%, but never higher. If you have multiple shareholders, including some who are inactive or ex-employees, you may have one or more dissidents who hold out approving the contract by trying to exercise their appraisal rights and stop a deal. These might be disgruntled employees or shareholders who have an unrealistic evaluation in mind for their very small portion.


You also don’t want the buyer to use this as last minute leverage to lower the valuation of the transaction or extract more favorable terms. I was in one transaction where we literally did not know if the dissident shareholders were going to walk into the shareholders meeting and try to stop the transaction. You never know if this kind of problem will happen to you, but you should always be prepared to handle it.


As we near the end of this blog series, we’ll continue next with “Avoiding delays due to disclosure schedules”; all ten critical terms can be found here.