Each company grows and progresses to become one day the subject of sale i.e. acquisition or merger. Every owner of a business dreams of encashing well his business some day. When the dream becomes reality and the sale of a company becomes certain, the company owners face the complex sale procedure, differing in many ways from the sale of other rights and assets.
According to the unspoken rule, transactions are usually carried out through the following phases:
- making of a business decision
- Non-Disclosure Agreement – NDA
- check list
- legal due dilligence (DD)
- submitting of binding bid
- accepting of binding bid
- Sales and Purchase Agreement – SPAA
- Shareholders’ Agreement (SHA)
The most important issues that the members, i.e. shareholders have to regulate in case of a merger are usually the following:
• management of the company
Part owners define the special majority for passing the most important decisions, then decisions on appointing the responsible persons in the company and decision on adoption of annual business plans and other important decisions.
• special rules for disposal of shares
This chapter specifically defines certain pre-emption rights and the overall procedure in case of intention of any party to dispose of its shares or stake.
• drag-along rights
A right that enables a majority shareholder to force a minority shareholder to join in the sale of a company. The majority owner doing the dragging must give the minority shareholder the same price, terms, and conditions as to any other seller. This is designed to protect the majority shareholder. Because some buyers are only looking to have complete control of a company, dragalong rights help to eliminate minority owners and sell 100% of a company’s securities to the buyer.
• tag-along rights
A contractual obligation used to protect a minority shareholder (usually in a venture capital deal). If a majority shareholder sells his or her stake, then the minority shareholder has the right to join the transaction and sell his or her minority stake in the company. Also referred to as ’cosale rights’. Tag-alongs effectively oblige the majority shareholder to include the holdings of the minority holder in the negotiations in order to facilitate the possibility that a tag-along right is exercised.
• call option
An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period. It may help you to remember that a call option gives you the right to ‘call in’ (buy) an asset. You profit on a call when the underlying asset increases in price.
• put option
An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. This is the opposite of a call option, which gives the holder the right to buy shares. This contract can stipulate other rights as well, but in this text we will focus only on the specified rights.