Capittal's view: what happens if a shareholder does not want to sell the company

Quick answer

Capittal's view is that two shareholders out of three can sell their own shares, but they cannot sell 100% of the share capital without the consent of the third one, unless the shareholders' agreement or the articles of association include a drag-along clause. Without that clause, the deal is unblocked by buying out the dissenting shareholder, by selling only the majority stake at a discount on price, or by structuring the exit in two phases.

Can I sell the company if one of the three shareholders objects?

You can sell what is yours. You cannot sell what belongs to the other shareholder.

Each shareholder owns their shares and decides freely on them. Neither the majority, nor the general meeting, nor the governing body can transfer a third party's shares without their signature or without a title enabling it. Two shareholders who together hold 70% can sell that 70%; what they cannot do is deliver 100% of the share capital to the buyer against the will of the third one.

• Selling your shares: always possible, within the limits set by the articles and the shareholders' agreement.
• Selling 100% of the share capital: requires all three to sign, or a drag-along clause.
• Forcing the dissenter by majority at the general meeting: no. The general meeting does not dispose of the shareholders' assets.

Is selling shares the same as selling the business?

No. They are two different transactions and the dissenting shareholder carries very different weight in each one.

In a share sale the buyer acquires the whole company with its history: contracts, debts and tax and employment contingencies. What governs is who holds the share capital, and the shareholder who does not sign stays inside with the new owner.

In a sale of the business or of the going concern, the company sells its assets and the buyer takes the activity, not the shares. That decision is taken by the general meeting, and when the asset disposed of is essential it usually requires a reinforced majority. The dissenting shareholder can vote against and, depending on the case, trigger their withdrawal right.

An asset sale is not a shortcut to get around the shareholder who says no. It leaves the company with cash instead of a business, doubles the tax cost across two tiers and generates litigation if the minority shareholder considers that the company has been stripped.

What is drag-along and at what percentage does it trigger?

Drag-along is the tool that turns a majority into a 100% sale.

If a shareholder or a group of shareholders reaching an agreed percentage receives an offer for the entire share capital, they can force the rest to sell their shares on the same terms of price and warranties. The dragged shareholder does not choose. They sell.

The threshold is agreed case by case. In shareholders' agreements of Spanish SMEs it is usually set between 60% and 75% of the share capital, frequently anchored to the same reinforced majority the articles already require for structural decisions. A low threshold protects whoever wants to exit. A high one protects whoever wants to stay.

A workable drag-along clause sets three things in writing: a minimum price or valuation method, identical terms for all sellers, and the liability cap of the dragged shareholder towards the buyer. Without those three elements, the clause gets argued over on the day someone tries to use it.

What if what I have is a tag-along?

Tag-along, or the right to come along, is the mirror image of drag-along and protects the opposite shareholder. It gives the minority shareholder the right to join the sale when the majority sells, on the same terms and in proportion to their stake. It does not force anyone to sell: it forces the one who sells to take the other one along if they want to go.

In your case tag-along unblocks nothing. If the third shareholder does not want to sell, they will not exercise it. It matters for the opposite reason: if the two of you sell and the agreement contains tag-along, that shareholder can change their mind and demand to sell on the terms you have negotiated.

Can the pre-emption right stop the sale?

Yes, and in a Spanish SL it is the most real brake of all, far more than a verbal disagreement between shareholders.

The Spanish Companies Act sets a restrictive default regime for transferring shares to third parties outside the company. If the articles do not provide otherwise, the transaction must be notified to the company, and the other shareholders —or the company itself— can acquire those shares on the terms offered.

Three practical consequences when a shareholder is against:

• The dissenting shareholder can take your stake themselves instead of letting the buyer in.
• There are formal deadlines to meet, and missing them makes the transfer unenforceable against the company.
• The process timetable stretches, and that has to be anticipated with the buyer before signing exclusivity.

The first thing we do at Capittal when a shareholder turns up against the deal is read the articles and the shareholders' agreement side by side, because they often contradict each other. Here is the only warning in this article: the specific corporate law analysis has to be reviewed by your lawyer on the actual documents, because every wording changes the outcome.

What happens if there is no shareholders' agreement?

With no shareholders' agreement, the articles and the law govern. Neither standard articles nor the law contain drag-along.

The result is straightforward: there is no route to force the third shareholder to sell. No majority achieves it. Either you negotiate with them or there is no 100% sale.

It is the most common situation in Spanish family-owned and industrial SMEs: companies incorporated twenty or thirty years ago, with off-the-shelf articles and no signed agreement. The moment to find that out should not be when there is already an offer on the table.

How much do I lose if I sell only 70% instead of 100%?

You lose in two ways at once. The buyer pays less per share and some buyers do not even bid.

A trade buyer or a fund looking for control values being able to decide without asking permission. If they buy a majority and inherit a minority shareholder who stays inside against their will, they inherit a shareholder with information rights, the ability to challenge resolutions and opposing incentives. They discount that risk from the price. Bank financing also becomes more complicated without full control over dividends and group reorganisation.

What practical ways out do I have before breaking up the company?

There are three structures that resolve this deadlock without litigation. All three are negotiated before going to market, not after receiving an offer.

• Buy out the dissenting shareholder's stake. The two shareholders who want to sell acquire the third one's percentage at an agreed price and go to market with a clean 100%. It is usually financed against the subsequent sale, which requires careful coordination of timing.
• Sell the majority with the dissenter reinvesting. The shareholder who does not want to exit keeps a percentage in the new structure and signs the agreement the buyer proposes. For many funds that is not an obstacle: it is exactly what they are looking for, a shareholder who stays on managing or supporting.
• Two-phase split with an earn-out. A majority package is sold now and the sale of the remainder is agreed for the future, with the price linked to results. The dissenter gets paid more if the company delivers, and their resistance turns into an incentive.

There is a fourth option: do not sell now and sign the shareholders' agreement that was never signed, with drag-along and tag-along, so that this deadlock does not repeat itself three years from now.

What is the reasonable next step?

The next step is to put a figure on the table. These disagreements are almost never about selling or not selling: they are about what the company is worth, and each shareholder has a different number in their head.

At Capittal Transacciones we prepare a confidential valuation of the company and calculate how the price changes in each scenario: full sale, majority sale with the dissenter reinvesting, and prior buyout of their stake. With that document in front of them, the conversation between the three shareholders stops being an argument about positions and becomes a decision about figures.

We are a mid-market M&A boutique in Spain, focused on transactions of 3 to 250 million euros and with eight offices: Barcelona as head office, Madrid, Girona, Lleida, Tarragona, Palma, Zaragoza and Valencia. We are part of the NRRO group. In a shareholder deadlock the conversation is led directly by the Capittal partner, because this negotiation is not delegated.