Mergers and acquisitions (M&A) are often framed around the dramatic "buy-sell" agreement. However, professionals in this space know that the real complexity, and the highest risk of failure, often lies in the internal issues of the acquiring or selling entity. Long before the deal closes, the legal work must encompass a deep dive into the purchaser's (or seller's) internal dynamics: governance, capital structure, finance, and stakeholder rights.

The Internal Tug-of-War

It's common for negotiations and documentation of these internal decisions to consume as much time and attention as the M&A transaction itself. This is because every major stakeholder – from majority owners to minority investors – has their own legal and financial teams, all seeking to ensure their investments, rights, and obligations are appropriately represented and protected.

At the core of this complexity is a fundamental tension:

• Majority Shareholders generally desire maximum control and the freedom to act decisively, unconstrained by extensive minority input. They also want protection from liability if a good-faith decision doesn't pan out.

• Minority Shareholders often demand a "seat at the table," believing their capital or influence was critical to the company's success and that their views should be incorporated into the process.

Private vs. Public: Where Influence Shifts

It's critical to distinguish between public and closely held companies when analyzing shareholder influence. While owning a handful of shares in a public giant like Apple won't give you any meaningful say in corporate matters, a private minority shareholder can wield considerable influence, or even a veto, over a smaller, closely held entity’s strategic decisions. This difference fundamentally changes the stakes in private M&A.

Essential Rights and Protective Measures

US corporate law generally identifies rights for minority shareholders, including the right to fair treatment, access to information, dividends/distributions, and voting rights. However, there are no universal laws. These rights are primarily outlined in state and federal law, and they can vary significantly by governing authority and, most importantly, by contract.

This is why legal and financial professionals must proactively consider and discuss a range of contractual concepts with clients on both sides:

• Preemptive Rights: Allowing existing shareholders to purchase new shares to maintain their proportional ownership.

• Anti-Dilution: Protecting the value of an investor's stake.

• Drag-Along Rights: Allowing a majority to compel a minority to sell their stake in an M&A deal.

• Tag-Along Rights (or Co-Sale Rights): Allowing a minority to join a majority shareholder in a sale.

• Appraisal Rights: The right to have a court determine the "fair value" of shares during certain corporate transactions.

Documentation: Your First Line of Defense

The ultimate agreement among shareholders must be meticulously documented. The Shareholder Agreement (or an Operating Agreement for an LLC), the corporate Bylaws, and relevant Finance Documents are the bedrock of future stability.

Furthermore, attention must be paid to shareholder purchase options and exit mechanisms, such as:

• Rights of First Refusal

• Warrants

• Put/Call Options

• Change of Control Provisions

The High Cost of Neglect

The analysis, negotiation, and documentation of these issues, regardless of whether you represent the majority or minority group, is paramount. Too often, these critical topics are not given the proper attention, resulting in internal disputes that surface during the M&A process. These disputes can quickly become deal killers. Worse, courts are clogged with majority/minority disputes, frequently because the foundational agreements were not properly thought out or documented. Should parties end up in litigation, a minority shareholder plaintiff may seek a range of expensive remedies, including financial damages, company dissolution, or injunctive relief.

As M&A professionals, our value lies not just in closing the sale, but in ensuring our client's house is in order before the transaction begins. We're here to help you navigate these complexities and help you solidify your foundation. Contact us today.

The foregoing is intended to be marketing material. Information is contained in this article is for general education and knowledge. It is not designed to be and should not be substituted for legal advice. This information is not intended to create an attorney-client relationship.